Reverse Mortgage

Reverse Mortgage

Taking out a conventional mortgage is a way for people to raise the amount of money they need to buy a new home. However, there is also a type of mortgage where the lender actually pays you. This is called a reverse mortgage.

What follows is a brief explanation of reverse mortgages and how you can make use of them.

The Purpose of a Reverse Mortgage

In this type of arrangement, you can take a part of the equity in your home and convert this value into cash money. Think of it as a sort of advance payment on the ultimate resale value of your home. There are many benefits to this arrangement, including the fact that the money you raise in this arrangement is tax free.

How Soon Do You Have to Pay Back the Money?

You normally won’t need to pay back the money you raise on your reverse mortgage for as long as you continue to live in the property. Payback only becomes due when you pass away, sell the home, or move out of it. At that point, it becomes the responsibility of your spouse or estate to pay back the loan. In some cases, this may mean having to sell the property in order to raise the needed funds to pay it back.

Single Purpose Reverse Mortgage

One of the three most common types of reverse mortgage is the Single Purpose reverse mortgage. This type may not be available in all localities. If it is available in your area, you can make use of it for the single purpose that you specify.

In most cases, this will involve using the money you get for the purpose of making repairs or timely upgrades to your property. You may also be able to use a single purpose reverse mortgage to pay off your property taxes.

Proprietary Reverse Mortgage

A proprietary reverse mortgage is a type of private loan that is backed by the specific company that offers it. If you own a home that has been valued at a high amount, you may be able to get a higher cash advance from your lender. This means that if your home has been appraised at a high value and you have a smaller than normal mortgage, you may qualify to receive a higher loan against the property.

Home Equity Conversion Mortgage

A home equity conversion mortgage is, so far, the only type of reverse mortgage that is insured by the Federal government. In this case, these mortgages are backed by the U.S. Department of Housing and Urban Development (HUD). This type of loan can be used for nearly any purpose. However, they tend to be more expensive than other types of reverse mortgages, with upfront costs being noticeably higher.

Is a Reverse Mortgage Right for You?

A reverse mortgage can certainly increase your available cash flow. However, this type of mortgage can also be very costly in the long run. You may find that you use up the available equity in your house much more quickly than you planned to. You may also be leaving your spouse and heirs in debt. It’s important to weight the pros and cons before you come to your final decision. If you’re considering a reverse mortgage give us a call and let’s explore your options.