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Depending on the plan you select, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre- selected loan period, or die. When you die, the lender does not take title to your home, but your heirs must pay off the loan. Usually, the debt is repaid by selling the home or refinancing the property.
Three Types of Reverse Mortgages
The three basic types of reverse mortgages are: 1) single-purpose reverse mortgages, which are offered by some state and local government agen- cies and nonprofit organizations; 2) federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and 3) proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.
Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.
HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.
Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. The counselor must explain the loan’s costs, financial implications, and alternatives. For example, counselors should tell you about gov- ernment or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.
The Pros and Cons of Reverse Mortgages