You may already know that a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), can help seniors stay in their home, pay off their mortgage, and enjoy a more financially-stable (and fun!) retirement. But did you know that there is more than one kind of reverse mortgage? There are actually three reverse mortgage products. And each one benefits the borrower in a different way. Mortgage rate, medical expenses, credit card debt, retirement plans, and a desire to move are just some examples of reasons why one kind of reverse mortgage will work better for you than another. Your licensed expert will work with you to help you determine which reverse mortgage is right for you based on your personal goals and needs. Here are the three types of reverse mortgages, or HECMs, available to you.
HECM Line of Credit
The benefit of this loan is that it is flexible when it comes to how you obtain your proceeds. One option is that you can have the money disbursed in one lump sum amount. If you choose this kind of disbursement, you will only use the interest rate that is in place at the time you take out your proceeds. Another option is to have your proceeds paid to you in smaller, monthly payments. This option helps you feel secure in knowing that you will receive a monthly income for as long as you live in the home as your primary residence. The final option is to receive your money through a line of credit. Much like a traditional line of credit, the money is available for you on an “as needed” basis. The great thing about the line of credit option is that your available credit – the money that you haven’t touched yet – grows over time if it is not used.
This type of loan also has an interest rate that changes and is based on how you obtain your cash. If you choose to take your money out in one lump sum, you will use the interest rate that is in place at the time you withdraw the funds. If you do not choose a full draw, then your interest rate will be based on the interest rate in place at the time of your withdrawals. The good thing is that reverse mortgage rates normally stay pretty flat for long periods of time, so you may not see to huge of a change.
The difference between this loan and a line of credit is that in a fixed loan, you can only get your money in one lump sum and the interest rate does not change. The interest rate at the time of closing is locked in as the interest rate for the rest of the life of the loan.
HECM for Purchase
The HECM for purchase, or reverse mortgage for purchase, is great for seniors who are looking to move into a new home. There are a number of reasons a senior may want to move including wanting to be closer to family, wanting to relocate to a warmer climate, wanting to downsize their home, or wanting to live in a house that better suits their lifestyle and physical needs. With this loan, borrowers can purchase a new home using their reverse mortgage. That means, you can purchase a new home without having to pay a monthly mortgage.
No matter which reverse mortgage product you choose, all of them have many similarities. At least one of the homeowners must be 62 years or older. The home must also be your primary residence. While you no longer have a monthly mortgage payment*, you are still responsible for paying taxes and insurance and for maintaining your home. With any of these loans, you will never owe more on your loan than the home is worth and the loan isn’t due until you move out of the home or pass away.
If you have any questions on any of these types of loans or on reverse mortgages in general, one of our licensed experts would be happy to help you.
*Homeowner is still responsible for taxes, insurance and property maintenance.