What are the different types of Reverse Mortgage products?
Because life situations vary from person to person, so do the types of reverse mortgage loan products. Here is a look at three distinctly different products: Home Equity Conversion Mortgage, Home Equity Conversion Mortgage for Purchase, and Proprietary reverse mortgages.
At their core, the three types of products are similar in that they:
- are available only to homeowners 62 years of age or older.
- do not require repayment is not required until death or if the homeowner moves or sells their home.
- allow homeowners to spend the funds any way they want.
- allow homeowners to utilize a portion of their home’s equity, but not its entirety.
- require homeowners to maintain their property and pay taxes, insurance, and HOA fees as required.
- allow homeowners to retain ownership of the home.
Each of these reverse mortgage products offer unique advantages that appeal to different types of homeowners.
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More on The Types of Reverse Mortgages
Home Equity Conversion Mortgage
Also referred to as a HECM, this is probably the reverse mortgage product that most are familiar with. It is federally insured by the Federal Housing Authority and are closely regulated by the government. There are no income requirements and the funds from this type of reverse mortgage may be distributed as a monthly payment, line of credit, or lump sum. A HECM is capped at $726,525, or the appraised value of your home, whichever is less, and requires mortgage counseling. HECMs may be a good solution for seniors who are struggling to make ends meet as well as middle-income earners looking to supplement their retirement income.
Home Equity Conversion Mortgage for Purchase (H4P)
Also referred to as a H4P, this reverse mortgage loan product is also backed by the federal government and is great for seniors who want to purchase their next primary residence. Not all seniors are happy with the home they have or where it is in relation to their family and grandchildren. The H4P reverse mortgage helps seniors increase their buying power and allows them to purchase a new home and obtain a reverse mortgage in a single transaction. The borrower pays a 50 percent down payment, and then receives the other 50 percent of the purchase price from the lender. H4P reverse mortgage loans may be well-suited for either seniors who are struggling financially or senior middle-income earners.
Proprietary Reverse Mortgages
Also called a Jumbo Reverse Mortgage, these proprietary loan products differ from HECM loans in that are not federally insured but backed by private companies. Because they are proprietary, they can offer larger loan amounts than those under FHA guidelines; specifically, propriety reverse mortgages can be in the millions versus the $726,525 cap for HECM loans. Proprietary reverse mortgage loans don’t require upfront or monthly mortgage insurance premiums, and they don’t require borrowers to receive mortgage counseling. Proprietary reverse mortgages may be attractive to homeowners whose properties are not eligible for FHA financing, or if their home value exceeds one million dollars.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.