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For people over 62, a reverse mortgage can be a great option to supplement retirement income or provide extra cash for repairs or other necessary expenses.
What Is A Reverse Mortgage?
A reverse mortgage, as its name implies, serves the opposite function of a regular home loan. Based on the value of your home, you receive a periodic check according to the terms of your loan, which is then paid off upon your death or upon the sale of the house.
What Are The Types Of Reverse Mortgages?
- Single-Purpose Reverse Mortgage. If you have a specific reason to take out a loan on your home, such as paying for repairs or needing assistance paying property taxes, certain government agencies and non-profit lenders offer a single-purpose reverse mortgage. These offer the least expensive upfront and closing costs for borrowers, but are only available to homeowners with low to medium income levels, and aren’t available everywhere. If you receive a single-purpose reverse mortgage, you may only use the money towards the reason specified in the terms of the loan.
- Home Equity Conversion Mortgages (HECMs). These are federally insured reverse mortgages through the U.S. Department of Housing and Urban Development (HUD). As opposed to single-purpose reverse mortgages, HECMs can have high upfront costs, so be sure you understand all of the costs versus benefits of this option. It helps if you’re planning on staying in your home for a long time, as it balances the initial expense. Home Equity Conversion Mortgages have no personal income restrictions, but require meeting with a government-approved housing counseling agency to go over the costs associated with this type of loan and provide potential alternatives. There’s a fee for the counseling service, but it can be paid from the loan, and you can’t be refused service if you can’t pay the fee.
- Proprietary Reverse Mortgages. These are private loans offered by lending institutions. Proprietary reverse mortgages also can have high upfront costs to consider, but if you have a high-value home or a smaller mortgage, they tend to offer more funds than loans through the HECM program.
What Are The Costs Associated With Reverse Mortgages?
Costs of reverse mortgage loans vary according to your individual financial situation, but tend to include an origination fee, an insurance premium, and any closing costs as determined by the lending institution.
How much can I borrow through a Home Equity Conversion Mortgage or Proprietary Reverse Mortgage?
While the amount that you can borrow mostly depends on the value of your home and any outstanding debt, the level of a reverse mortgage loan is determined through criteria including the age of borrower, type of reverse mortgage, and interest rate. Payments from the reverse mortgage are determined in the conditions of your loan. While there are some reverse mortgages with fixed rates, most are tied to an index that changes with market conditions.
Home equity conversion mortgages offer different payment options as set in the guidelines of the program. HECM options include a “term” of fixed monthly cash payments within a specified period, a “tenure” of fixed monthly cash payments that last as long as you live in the house, a line of credit for a specified total amount that you can draw upon at your choosing, or a combination of these options. You can always change the options that you’ve selected for a small fee.
Proprietary reverse mortgages will have payment options based on the guidelines of the lending company.
What Else Should I Know About Reverse Mortgages?
- Cash advances from reverse mortgages aren’t taxed, and shouldn’t affect benefits such as Social Security and Medicare.
- Most reverse mortgages will have a “non-recourse” clause for you and your heirs, which assures that if the house sells for less than the value of the loan, then you don’t owe the difference. This doesn’t apply, however, if you want to keep the title of the house.
Talk to a Get A Rate local home loan specialist to find out whether a reverse mortgage is right for you. Get A Rate has a long and impressive track record of exceptional service (check out awesome reviews from our satisfied customers!), and our seasoned mortgage experts will provide you with fast, easy, and convenient solutions for your New York or New Jersey home loan needs.