What is a reverse mortgage and how seniors should choose the right one?


A reverse mortgage is a mortgage product gaining a lot of popularity among senior homeowners allowing them to take a loan against their house while living in it, and receive payment rather than paying the lender.

Reverse mortgage loans help tap a part of the equity without getting into further bills; it helps seniors pay healthcare and supplement their income. The proceeds of a reverse mortgage are most often tax-free, seniors have to be 62, and inhabit their own home. There are no income requisites. Remember, you have three days after signing the reverse mortgage loan to cancel without penalty and receive back all money paid so far toward loan fees.

Reverse Mortgage Types

  • Single purpose reverse mortgage

    Those are usually offered by government agencies and nonprofit organizations, have very low costs, and can be used with a single purpose specified by the lender - such as home rehabilitation or estate taxes. There are income requirements that have to be covered to qualify for this mortgage.

  • Proprietary reverse mortgages

    They are developed and backed by private institutions.

  • Home Equity Conversion Mortgages (HECMs)

    HECMs are reverse mortgages backed by HUD - the US Department of Housing and Urban Development.

If you need a low-cost single-purpose reverse mortgage, you'd better call the Area Agencies on Aging (AAAs).

HECMs and the proprietary reverse mortgages are more expensive, and with higher closing costs but income and medical requirements are waived and can be used for any purpose. If you live in an expensive home, a proprietary reverse mortgage may get you bigger loan amount than a HECM.

Reverse Mortgage Loan Specifics

A reverse mortgage loan does not affect social security and Medicare, advances made will be non-taxable, but you will have to pay taxes, insurance and other property related fees. The reverse mortgage can become due if you do not pay taxes and insurance.

Usually, reverse mortgages have lender-set closing costs and fees and are offered with fixed or variable rates. A reverse mortgage loan often contains a nonrecourse clause - with it, you cannot owe more than you borrowed. Interest is not tax-deductible until loan is at least partially paid and you cannot sign a reverse mortgage before going through counseling.

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