Get the Cash You Need with Reverse Mortgage Loans
Are you considering taking out a reverse mortgage loan, but you still aren’t sure if it is the right for you? Reverse mortgage loans have provided thousands of senior citizens with the money they need to supplement their income, to pay their healthcare expenses, to make home improvements, to pay for college for a loved one, or to simply have the necessary cash to live a more fulfilling life. Nonetheless, it is important to learn as much as possible about these loans before you make your final decision. In this way, you can be sure you are making the decision that is best for you and your loved ones.
Types of Reverse Mortgage Loans
In the most general sense, a reverse mortgage loan is a type of loan that allows you to get cash for the equity you have built in your home. Yet, unlike a home equity loan, you do not have to pay a monthly bill toward repaying the loan. Instead, you either receive monthly payments from the lender or you are provided with an open line of credit that allows you to access the funds as you need them. While you will ultimately have to repay the loan, you don’t have to worry about making payment until you sell your home, move out of your home or pass away.
If you are interested in obtaining one of these loans, there are three primary types of reverse mortgage loans available. These include:
- Single-Purpose Reverse Mortgages – offered by nonprofit organizations as well as by some state and local government agencies
- Federally-Insured Reverse Mortgages (also known as a Home Equity Conversion Mortgage, or HECM)– backed by the U.S. Department of Housing and Urban Development
- Proprietary Reverse Mortgage – private loan backed by a company
While single-purpose reverse mortgages are the least costly option, they are not available everywhere and they can only be used for a purpose that has been specified by the nonprofit or government lender. For example, you may be required to use the money to make home improvements or to pay your property taxes.
When you take out an HECM loan or a proprietary reverse mortgage, you have a lot more freedom in terms of how you can use the money. On the other hand, these types of reverse mortgage loans are far more costly than single-purpose reverse mortgages. If you only need to borrow a small amount of money or if you only plan to remain in your home for a short period of time, paying the upfront costs involved with these types of loans may not be worthwhile.
Benefits of Reverse Mortgage Loans
Taking out a reverse mortgage loan offers many benefits. When you take out a reverse mortgage loan, you are able to:
- Get the money you need to pay for life’s expenses without having to sell your home
- Receive a loan without worrying about income restrictions
- Take out a loan without having a monthly payment
- Remain in your home for as long as you wish
- Obtain a tax-free loan
Deciding if a Reverse Mortgage Loan is Right for You
When deciding whether or not a reverse mortgage loan is right for you, you need to consider the cost involved with the loan as well as your reasons for taking out the loan. To help you make this decision, you will be required to meet with an independent government-approved counseling agency if you wish to take out an HECM. In some cases, proprietary reverse mortgage lenders also require borrowers to meet with a counselor before making a deal. When meeting with a counselor, he or she should do all of the following:
- Explain the cost of the loan and its financial implications
- Offer information about alternative loan options
- Help you compare the cost of various types of reverse mortgage loans
- Discuss the payment options associated with your loan
Even if your lender does not require you to meet with a counselor, you may want to take this step on your own accord. You can find a counselor by calling 1-800-569-4287 or by visiting the HUD website. www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm While most counseling agencies charge a $125 fee, you cannot be turned away if you can’t afford to pay.
Determining How Much You Can Borrow with a Reverse Mortgage Loan
The amount of money you can borrow with an HECM or proprietary reverse mortgage loan is dependent upon a number of factors. Some of these include:
- Your age
- The type of reverse mortgage you select
- The value of your home
- The amount of equity in your home
- Your interest rate
In general, the more equity you have in your home and the older you are, the more money you will be able to get.
Receiving Your Reverse Mortgage Loan Payment
After you determine how much you will borrow with your reverse mortgage loan, you need to decide how you wish to receive your payment. In general, you will have four options to select from. These include:
- The “term” option – allows you to receive a fixed amount of money each month for a specific period of time
- The “tenure” option – allows you to receive a fixed amount of money every month for as long as you are in the home
- The “line of credit” option – allows you to draw money whenever you need it from a pre-determined total amount of funds available
- The “combination” option – allows you to receive a monthly payment while also having an available line of credit
To determine which option is right for you, you need to consider why you need the money and how much money you will need at any given time. This way, you can be sure to get the most out of your reverse mortgage loan.