Types of Reverse Mortgages.
What Type of Reverse Mortgage is Right for You? A reverse mortgage is so called because you receive payments in exchange for your home equity. Reverse mortgages are only available to certain homeowners who meet certain requirements. Once you begin to explore reverse mortgage, you will notice two types: A home equity conversion mortgage (HECM), which is federally backed, and a proprietary reverse mortgage, which is privately contracted. At Reverse Mortgage Alabama, we help clients in Gardendale, and Mount Olive AL, determine which of these types of reverse mortgage will best suit their needs. Contact us with any questions you have about HECM and proprietary reverse mortgage today.
Understanding HECM Reverse Mortgage
An HECM is the most popular type of reverse mortgage. This type of reverse mortgage is regulated by the U.S. Department of Housing and Urban Development. It was designed to help seniors who would benefit from additional income utilize the equity in their homes toward that purpose. This is not a type of government loan, but is rather insured by the Federal Housing Administration in exchange for a small insurance fee.
To apply for an HECM, you must be at least 62 years old, receive counseling from a certified reverse mortgage counselor, have no federal debt, own most or all of the equity in your home and be able to pay for property tax, homeowners insurance and other living expenses. The maximum loan available for an HECM is $625,000.
Once you have been approved for an HECM, you must remain in your home, where you will no longer pay mortgage. You will receive monthly payments, a lump sum or a line of credit in exchange for the equity in your home. As long as you continue to meet the terms of your contract, you can live in your home until your death or you decide to end your contract.
Understanding a Proprietary Reverse Mortgage
A proprietary reverse mortgage is another option available to seniors in Mountain Brook, AL. Unlike an HECM, a proprietary reverse mortgage is privately insured through a mortgage company. They have fewer regulations than HECMs because they are not federally insured. However, most proprietary reverse mortgage companies will still practice some of the requirements of HECM, such as counseling.
Most of our clients who consider proprietary reverse mortgage do so because their homes exceed the maximum $625,000 limit allowable with an HECM loan. The Reverse Mortgage Alabama team provides proprietary reverse mortgage options to our clients who fall in this category. Just a rule of thumb because Mountain Brook has some expensive homes, we have done the math, and to not use an FHA Reverse Mortgage, and use a jumbo instead, your homes value must exceed 1.25 million, just to break even with the FHA $625,000 version.
Receiving Your Payout
For both HECM and proprietary reverse mortgage options, you have the choice of how you would like to receive your payment. Some of our clients choose to receive their payment in a lump sum, while others benefit from a monthly supplemental income or a line of credit. If you live in the Mountain Brook, contact Reverse Mortgage Alabama for a free consultation about your home and your financial goals. We offer honest advice and can help you explore all of your options.