Don't Consider a reverse mortgage Until You Read This!

As an older American you can turn to a reverse mortgage to seek money to pay off your current mortgage, finance a major home improvement, supplement your retirement income, or to pay for healthcare expenses. These type loans or reverse mortgages can allow you to convert part of the equity in your home into cash - without having to sell your home, move out OR take on any additional monthly debt.

In a "typical" mortgage, you make monthly payments to the lender. However, with a reverse mortgage, the homeowner receives money FROM the lender and, generally, doesn't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or you no longer consider it your principal residence. Reverse mortgages are ideal for homeowners who are house rich but cash poor! It allows you to stay in your home and still meet your financial obligations! In many cases, these types of mortgages have been used to increase the quality of live of many older Americans.

To qualify for most reverse mortgages, the owner must be at least 62 and live in their home. The proceeds of the reverse mortgage are typically tax-free, but check with your accountant or CPA to be sure. In addition, the typical reverse mortgage has no income restrictions whatsoever.

The Three Types of Reverse Mortgages:

The three basic types of reverse mortgage are: - Single - purpose reverse mortgages which are offered by some state and local government agencies and certain nonprofit organizations. - Federally - insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U.S. Department of Housing and Urban Development (HUD). - Proprietary reverse  mortgages which are private loans that are backed by the companies that have developed them.

Single-purpose reverse mortgages usually have very low costs. But they have limited availability and only can be used for one purpose which is specified by the government or nonprofit lender.  An example would be to pay for home repairs, home improvements or for property taxes. To qualify for these loans you have to currently have low to moderate income in most cases.

HECMs and proprietary reverse mortgages tend to be more costly than other type home loans. The up-front costs can, sometimes, be very steep. They are generally most expensive if you only stay in your home for a short period of time - say less than 2-5 years. They are, however, widely available and have no income or medical requirements. They also can be used for any purpose you desire.

You must meet with a counselor from an independent, government approved housing counseling agency before you can apply for an HECM. The counselor is required to explain what a reverse mortgage is, the costs, financial implications, and all of the alternatives. As an example, counselors or supposed to tell you about other government, or nonprofit reverse mortgage programs  for which you may qualify. The Counselors must also inform you of any single-purpose, or proprietary reverse mortgages that are available within your geographic area.

The amount of money you can borrow with a HECM, or proprietary reverse mortgage, depends on several factors. These are:

- Your age

- The type of reverse mortgage you select

- The current appraised value of your home

- The current interest rates

- Where your home is located.

In theory: - The older you are - The more valuable your home is and the less you owe on it the more money you can actually get.

The HECM reverse mortgage gives you choices in how the loan proceeds are paid to you. These are:

1) The option to select a fixed monthly cash advance for a specific period or for as long as you live in your home.

 2) The option of a line of credit allowing you to draw on the loan proceeds at any time in amounts that you have chosen. This is similar to the normal home equity loan.

3) The option to get a combination of monthly payments PLUS a line of credit.

4) HECM reverse mortgages generally provide larger loan advances, at lower total costs, than proprietary reverse mortgage loans.

However, owners of higher valued homes can probably get larger loan advances from a proprietary reverse mortgage. This is only true if you have a higher appraised value and a smaller mortgage balance. If that is the case, you may likely qualify for greater funds with a proprietary reverse mortgage.

NOTE: The location of your neighborhood is only one part of the determination of appraised value.

Loan Features: