August 1, 2024
A reverse mortgage is a refinance option for homeowners 62 or older who want to tap into their home equity. These loans are designed for senior homeowners who own their homes outright or are close to doing so.
There are FHA reverse mortgages and conventional equivalents. Some borrowers are right for a conventional option, while others should consider the FHA HECM.
Traditional mortgages require monthly payments to a lender. In contrast, reverse mortgages allow senior homeowners to borrow money secured by the equity in their home. These loans offer cash back to the borrower in a variety of options, including a lump sum, monthly payments, or a line of credit.
Typically, repayment is not required during the borrower’s lifetime unless the home is sold or no longer used as the primary residence.
FHA-insured Home Equity Conversion Mortgages (HECMs) have consumer protections and lender guidelines that consumers appreciate. They also provide different disbursement options such as lump sum, monthly payments, line of credit, or a combination of these.
However, HECMs have higher upfront costs, are primarily available for single-family homes and certain condominiums, and have stricter eligibility requirements.
On the other hand, conventional reverse mortgages, offered by private lenders, provide flexibility and potentially lower costs.
You may find more flexible terms and eligibility requirements with a conventional reverse mortgage than FHA HECMs.
Some may have higher loan limits, borrowers with high-value homes should take note as this may affect the outcome of those transactions.
That said, conventional reverse mortgage loans may not feature the same consumer protections. The loan terms and features can vary significantly between lenders, conventional or not.
When choosing the right reverse mortgage for you, remember to consider the variables. They include eligibility, costs, flexibility, how much risk is involved, and the lender’s reputation in the industry.
Shop around for a reputable lender with experience in reverse mortgages. Remember, you don’t have to use the same bank you got your original FHA loan or conventional mortgage.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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