Types of Reverse Mortgages
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Types of Reverse Mortgages
Reverse mortgages exist in three forms:
Home equity conversion mortgages (HECMs)
These mortgages are created and regulated by the Department of Housing and Urban Development (HUD). HECMs are issued by private lenders, but they are insured by the Federal Housing Administration, a part of HUD. The insurance is paid for through the annual mortgage insurance premium assessed on the borrower. The insurance protects the borrower if he or she is not able to pay off the loan upon vacating or selling the home, and it protects the lender if it is unable to make payments to the borrower.
Things To Know
- HECMs are the most common reverse mortgage.
- Proprietary reverse mortgages are created and backed by private financial institutions.
- Some reverse mortgages are allowed only for a single purpose.
If you apply for a HECM, you must undergo loan counseling, for which you must pay a fee; the fee can be paid for from the proceeds of the loan, if you desire. The loan counseling will explain the costs of the loan, how the costs affect the loan, and available alternatives to HECMs.
HECMs are the most common option available.
Proprietary reverse mortgages
These are reverse mortgages that are created as well as backed by private financial institutions. They thus have fewer government regulations on them. As such, there are no limits on how much you can receive or how much you may be charged in fees.
Single-purpose reverse mortgages
These are offered by state and local government agencies, but not everywhere. They can be used for only a single purpose, which is stated by the lender. An example of a single use would be for home improvements. Single-purpose reverse mortgages are the least expensive of the three options.
