Retirement is a time of new opportunities. One of those opportunities is the chance to explore extra mortgage options. If you own your own home, you are already potentially eligible for a traditional mortgage. However, reaching age 62 or older entitles you to also apply for one of several types of reverse mortgages, if you wish. Let’s look at what a reverse mortgage is and what those categories are.
The Retiree-Friendly Home Loan Option
In the 1960s in Maine, a woman went to a lender desperate for help because her family was no longer getting her husband’s working income. They were in danger of losing their house. The lender took pity and developed a plan that was later adapted several times over. Today it is known as a retiree mortgage or a reverse mortgage.
A reverse mortgage allows you to keep your home and pay no funds back while living in it. That lets you use the money in whatever ways you need during your Golden Years. That could be to cover surgical expenses, prescriptions, home repairs, or other needs. However, you can also use the money to fund travel or other fun activities. Regardless of how you spend it, the point is it could be many years before you owe it back.
How a Reverse Mortgage and an HECM Vary
The term “HECM” is an acronym for “Home Equity Conversion Mortgage.” The purpose of an HECM is identical to that of a regular reverse mortgage. The terms are also quite similar. The two biggest differences is that HECMs are only offered by the Department of Housing and Urban Development (HUD) or other government agencies and that such loans are insured by the U.S. government. Standard reverse mortgages are government-regulated, but they are not insured in the same way.
Reverse Mortgages Offered Through Private Institutions
Reverse mortgages are often offered through private (non-government) institutions. They are referred to as proprietary reverse loans. You can get a proprietary loan from a small local bank or a branch of a national institution. In either case, it is not specifically government-offered. However, the government does still set some associated standards, such as loan caps.
How to Get a Higher Loan Cap
If your home has a high value, you might feel the loan cap on a standard reverse mortgage is too low. In such a case, you do have another option. You can apply for a jumbo reverse mortgage. A jumbo reverse mortgage also has a government-regulated borrowing cap, but that cap is much higher. Jumbo reverse mortgages are not as commonly offered as regular reverse loans. Therefore, you may have to search a little harder for a lender offering the loan terms you want.
Borrowing Commonalities Across Reverse Loan Types
All types of reverse mortgages have certain things in common. For example, you can ask to borrow funds in several ways, including through a credit line, ongoing checks or one sum equaling the total amount available. They are also similar in that, regardless of the type of reverse loan you choose, you pay back those funds long in the future, not soon after you borrow them.
The Reverse Mortgage Final Decision Making Process
A reverse mortgage can be quite beneficial when you need extra cash. However, it is not the right choice for every retiree. Even if you think it is the right one for you, think long and hard before signing a contract. Make sure you are choosing the type of reverse mortgage you need, as well as the right source from which to obtain it.