Best Reverse Mortgage

During the current downturn in the economy many homeowners are considering a reverse mortgage to resolve cash flow problems. A reverse mortgage, which will pay cash to you, the owner, for the equity you have in your home while you are still living there, seems like the perfect scenario. Several facts are important to know before signing up for a reverse mortgage. You must understand what a reverse mortgage is, how a reverse mortgage will pay you cash while you are still living in you home, and how to get the best reverse mortgage for your particular situation.

Isn't a reverse mortgage the same as a home equity loan? No. A reverse mortgage allows the homeowner to convert the equity, or money that has been paid on the principal of the loan, into cash. Different from a typical home equity loan, also called second mortgages, a reverse mortgage does not have to be repaid while the homeowner is living in the home. The money received from the reverse mortgage is not taxed. Also this income cannot decrease Medicare and Social Security benefits.

Understanding the 3 basic types of reverse mortgages is the first step to finding the best reverse mortgage for you. Single purpose reverse mortgages, federally insured reverse mortgages, and proprietary reverse mortgages maybe available to you.

Single purpose reverse mortgages are less common and few people are able to qualify for them. These reverse mortgages are offered by local governments and nonprofit organizations. They are low cost, restrictive, and how you may use the funds are spelled out in the mortgage agreement. Your income level must be low to moderate to qualify for a single purpose reverse mortgage. They are not available in all areas of the country.

The more common option is a federally insured reverse mortgage, is also known as a Home Equity Conversion Mortgage (HECM). While these will cost you more than a traditional second mortgage, they can be used for any purpose. HECMs are widely available. You do not have to repay a HECM while you are living in your home. Another benefit, there is no income restriction to qualify.

The final option is a proprietary reverse mortgage also known as a jumbo reverse mortgage. These mortgages are offered by financial institutions and allow owners of higher priced homes to receive more money than an HECM will allow.

Counseling is a required part of the HECM application process. Some lenders of proprietary reverse mortgages will require the same. You must be aware of the fact that a proprietary or a federally insured reverse mortgage is more expensive than simply getting a second mortgage. Also the front costs tend to be higher. The loan counselor will be required to explain the costs, the financial implications to you, and all alternatives that exist. Also be wary when other financial products are offered with the reverse mortgage. These financial products are not required.

If you are considering a reverse mortgage, speak with several lenders before you decide.  Consider how much equity you have in your home, the amount of money you will need in the future, and how much the reverse mortgage will cost. Don't forget that while you are living in your home you will have the expense of insurance, maintenance, and property taxes. Factor all of your expenses in when you review the aspects of a reverse mortgage with a financial counselor. You must understand how a reverse mortgage will affect your financial status in the future. Only after you have done these things can you determine the best reverse mortgage for you.