Understanding the Concept of the Reverse Mortgage

By Kelly Richardson
LoanPage.com Columnist

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One of the biggest problems that seniors face is the diminishing paycheck due to health or age related limitations. But if you're 62 or older and you own your home, you can get a reverse mortgage that will turn your home into cash.

The reverse mortgage is fast becoming a popular home loan option for senior citizens to pull a lump sum or steady income from their home without selling it or obligating themselves to monthly payments. Here are the three main reverse mortgage options.

Types of Reverse Mortgages

  • » Single Purpose. A single purpose loan can only be used for projects specified by government or nonprofit lenders. Typical projects that qualify include home improvements or property taxes. These loans carry very low costs and are only available to people with low or moderate income.
  • » Government Backed. Home Equity Conversion Mortgages (HECMs) are administered by the US Department of Housing and Urban Development (HUD). These reverse mortgages have no income or medical requirements and can be used for any purpose.
  • » Proprietary. Proprietary reverse mortgages are products of private lenders and are backed by private capital.
Perhaps the most attractive feature of a reverse mortgage is the fact that there are several ways that you can elect to receive your cash payment. This allows you to carefully plan how the money is used with very few limitations, other than those specified by the home loan type.

Reverse Mortgage Payment Options

  • » Lump sum payment in cash at time of closing
  • » An annuitized monthly payment schedule
  • » A credit line extended to you in which you decide when and how much money you draw.
  • » Any combination of the above options
More information about reverse mortgages and how they work is available online from AARP, the federal government, and various private lending firms.

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About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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