Is a Reverse Mortgage the Right Fit for You?

In 1961, a Maine-based bank created the reverse mortgage loan, and it was later adopted by the United States Department of Housing and Urban Development. Now a common financial product in the United States, many people wonder if the reverse mortgage is a right fit for them.

What is a reverse mortgage?

A reverse mortgage is a type of loan that uses the home as security. It was developed to help older homeowners with the majority of their assets in their homes supplement their life or pay for unforeseen expenses. The reverse mortgage was once reserved for Americans that were 62 or older but has since been changed to 55 or older. Many homeowners will use their reverse mortgage loan to pay off their remaining mortgage, should they have any left. Others will use it to pay for their medical expenses or supplement their current income. Borrowing against your equity is not free, and all reverse mortgages will accrue interest that will be paid when the loan is paid. Unlike typical loans, reverse mortgages do not have monthly payments, and all payments are due at the end of the loan’s term. A reverse mortgage will end when the owner sells the home, moves, or passes away.

Pros and Cons of Getting a Reverse Mortgage

Three types of reverse mortgage loans

Not all reverse mortgages are created equally, so homeowners will have choices if they are interested in acquiring one. The three types of reverse mortgages are single-purpose reverse mortgage, federally-insured reverse mortgage, and proprietary reverse mortgage. Each type has its own benefits and drawbacks; deciding which one best fits your circumstances is a choice every loaner must look into. Some notable features to note about the loans are included below.

Single-purpose reverse mortgage:

This type of loan is rarer than the other two and is often more inexpensive with lower interest rates and fees. Single-purpose reverse mortgages are typically sponsored by a state, local, or nonprofit lender. The lowered cost is matched by the high restrictions of single-purpose reverse mortgages. As the name states, these loans are reserved for a single lender-approved purpose such as taxes or repairs. This is not characteristic of mortgage loans, with the other included loans having endless possibilities for spending.

Be sure to check with your local lenders as single-purpose reverse mortgages are not...

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