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Things to know before opting for a reverse mortgage

Things to know before opting for a reverse mortgage

A reverse mortgage is a type of loan taken against home equity. Basically, you can put up your house as collateral for a lumpsum amount of credit. The more valuable your home is, the better are your chances of getting a bigger loan against the equity. Before opting for a reverse mortgage, there are several factors to consider, including the types and costs. Read on to know more about availing of this loan type.

Common types

  • Single purpose mortgage
    Single purpose mortgages enable applicants to apply for a smaller loan against home equity. The money from single purpose mortgage can be used for a specific purpose. It is usually preferred by non-profit organizations or local government agencies for remodeling or renovation purposes.
  • Proprietary mortgage
    If you own a home or property of significant value, a proprietary reverse mortgage will fetch you a higher amount loan. Note that the federal government does not offer any backing for these lines of credit and only private institutions offer this type of loan against the equity.
  • HECM mortgage
    A Home Equity Conversion Mortgage (HECM) is an extremely popular option that is also backed by the Federal Housing Administration (FHA). An HECM reverse mortgage allows you to utilize the loan taken for most eligible purposes or expenses.

Based on the types mentioned above, HECM loans are worth considering as it is typically offered by FHA-approved lenders and is also federally insured. It is easy to avail and offers flexibility in terms of the loan amount utilization.

Tips for using a reverse mortgage efficiently
Home Equity Conversion Mortgages Federal Housing Association or HECM FHA-approved reverse mortgage can be used in the following ways.

  • To help your children or grandchildren to pay for the existing property.
  • To delay social security benefits by using the loan as retirement income.
  • Help you manage investments for future returns and benefits, thereby using it as a supplemental income.
  • To pay any health-related expenses that may not be covered under other types of insurance.
  • Remodel and sell your existing home for a bigger and valuable property upgrade.
  • Pay off taxes, pending debts, or outstanding dues, thereby managing a good credit score.
  • For contingencies and emergencies and to create a better monthly cash flow.

Reverse mortgage costs
The interest rate depends on the type of mortgage. Given below are approximate historic market rates across most FHA-approved lenders for HECM mortgage.

  • Lowest Fixed Rate – 2.990%
  • Lowest Adjustable Rate – 2.083%

An important point to note here is that these weekly estimates may change without any prior notice given publicly. Financial experts also recommend being aware of the lending limits as changes in these amounts influence the overall rates. Plus, lending limits vary depending on the credit institution. However, you don’t have to worry about the exact cost of the loan. Mortgage calculators are available online, and these are designed to use algorithms that give you the best possible current estimate on rates and eligible amounts.

Popular institutions like the American Advisors Group (AAG) and Lending Tree provide free calculators. You will have to provide the home value and mortgage balance details on behalf of the oldest homeowner. These are crucial factors for the calculation of interest rate, loan disbursement, and repayment schedules.

Top companies for reverse mortgage

  • American Advisors Group offers the best overall services for loan against equity.
  • Quontic Bank is best known for its long-term flexible mortgage options.
  • Liberty Reverse Mortgage offers HECMs and HECM for purchase loans along with jumbo reverse mortgages.
  • Reverse Mortgage Funding LLC. is also considered as one of the top reverse mortgage companies due to its ease of qualifications process.
  • Longbridge Financial can be considered if you are looking for the option of more than one reverse mortgage product.
  • If you are a senior looking to move homes by paying off your prior mortgage early and cash in on your home’s equity, then Finance of America Reverse can be an ideal option.

It is always a good idea to consult with the company representative to understand the terms of the application in its entirety.