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How Reverse Mortgages Can be Used for Leveraging in your Senior Years

By Edited Jan 29, 2016 0 0

The Reverse Mortgage, A Viable Option for Seniors

If you are older and have plenty of equity in your home but need additional funding, then you might be thinking of securing a reverse mortgage. So, what is a reverse mortgage and how does it work? First, let’s look at the concept behind a traditional mortgage. When you obtain a traditional mortgage, you are obligated to make monthly payments on your loan until the debt is paid. In the case of a reverse mortgage, you receive the proceeds; however, you don’t have to make any payments until you pass away. Therefore, many seniors are viewing this as an option in order to pay for medical expenses or to improve their property. If you are in a situation where you need the cash but don’t want to move, then a reverse mortgage may be an answer.

Home Equity Conversion Mortgages (HECMs)

You can choose from three kinds of reverse mortgages. Reverse mortgages backed by the Federal government are known as HECMs, or Home Equity Conversion Mortgages. HECMs are supported by HUD (Housing and Urban Development). As an HECM is more costly than a traditional mortgages, an HECM may not the right loan to consider if you are trying to obtain a small amount of funding, or plan to move from your current home in about one or two years’ time. Nevertheless, if you want to remain in your home and need a good deal of cash, the loans can be easily obtained, do not stipulate any income requirements and can be used for a variety of reasons, including paying medical bills, improving your home or taking a holiday.

Single Purpose Reverse Mortgages

Single purpose reverse mortgages are provided by some local and state governmental agencies as well as certain nonprofit organizations. They are less expensive than the other types of reverse mortgages offered and, as the name suggests, can only be used for a single purpose as indicated by the lending source. Lenders, for example, may designate the proceeds for paying taxes or making either repairs or upgrades to the home. These reverse mortgages are often allocated to individuals who possess lower incomes.

Proprietary Reverse Mortgages

Proprietary reverse mortgages are privately funded loans. If your home has a higher value, you may obtain more money with a proprietary mortgage. However, you will also incur more in the way of cost too. The amount you are permitted to borrow, whether you choose a reverse mortgage or HECM, depends on a number of criteria, such as:

  • The equity in your home
  • How much you owe on your property
  • Your age
  • The appraised value
  • Current APR

If you are 62 or older and have a substantial amount of equity in your home, you usually can obtain a good deal of money in the way of proceeds. In this economy, reverse mortgages, in some instances, are supplying the financial resources needed for seniors to leverage their equity and meet the costs related to healthcare, the home and retirement.


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