Reverse Mortgage Types

Homeowners 62 and older can leverage their home equity with a reverse mortgage. The titleholder with considerable equity or who owns their home outright can take out a loan on part of their equity. The loan becomes due when the homeowner moves out, sells the home, or dies.

However, not all reverse mortgages are the same. The different types include:

Home Equity Conversion Mortgage (HECM)

The home equity conversion mortgage (HECM) is the most widely used reverse mortgage because of the flexibility it offers. There are no medical requirements or income limitations to qualify for a HECM reverse mortgage. Plus, the loan can be used for literally any purpose that is given by reverse mortgage lenders.

HECM loans are federally-insured and backed by the United States Department of Housing and Urban Development (HUD). Eligible borrowers can take out loans up to $822,375 as of January 2021 against the value of their homes.

However, the amount any homeowner can access depends on their age, the value of their home, and the equity in the home and reverse mortgage lenders. Besides, the borrower needs to complete the mandatory counseling by a government-approved counselor.

HECM reverse mortgage loans come with fixed-rates or adjustable-rates, both of which are insured by the Federal Housing Administration (FHA).

Fixed-Rate Reverse Mortgage

Taking out a reverse mortgage with a fixed-rate is particularly beneficial in helping the borrower to lock in a low-interest rate for the life of the loan. However, you can only receive payment in a lump sum with the fixed-rate option.

Adjustable-Rate Reverse Mortgage

This option offers greater flexibility and has five payment options:
  • Line of Credit: This allows you to receive unspecified payments from your reverse mortgage as you need them. Payment will continue until your funds are exhausted
  • Term: The term option enables you to receive a set monthly payment for a specific period
  • Modified Term: This gives you access to a line of credit and set monthly payments for a specified period elected by you
  • Tenure: This option allows you to receive set monthly payments for as long as you or your qualified spouse live in your home
  • Modified Tenure: This payment option lets you draw from a line of credit and set monthly payments for the duration you or your eligible spouse continue to live on the property

Proprietary Reverse Mortgage (Jumbo Reverse Mortgage)

The borrowing limit on federally-insured reverse mortgages can make the option unattractive for homeowners 62 and older with high-value properties. Jumbo or proprietary reverse mortgage is designed to cater to this group of homeowners, allowing them to access more funds from the equity in their homes.

The proprietary reverse mortgage is not insured by the FHA. Instead, it is backed by banks and private lending companies that develop the loan. Typically, the funds from this type of reverse mortgage are available only in a lump-sum payment option when the loan closes, with generally lower fees but higher rates than the Hecm reverse mortgage.

Single-Purpose Reverse Mortgage

This is the least expensive type of reverse mortgage because they are usually designed for only one purpose. The lender specifies what the loan can be used for, which includes paying property taxes, making home improvements, or paying for home repairs.

The single-purpose reverse mortgage requires a small amount of equity, making it ideal for homeowners 62 and older with low to moderate-income.

The loan is usually offered by non-profit organizations. Also, borrowers can access the loan from some state and local agencies. However, it may not be available everywhere. Your local agencies on aging can provide helpful information on how to find a single-purpose reverse mortgage lender.

You can speak with our specialists today if you need further information on how to choose a reverse mortgage that best suits you.

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