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What are the various types and advantages of a reverse mortgage?

If you're of 62 years of age or older and require money to pay for your medical expenses, make home improvements or for any other purpose,

If you're of 62 years of age or older and require money to pay for your medical expenses, make home improvements or for any other purpose, you can consider obtaining a reverse mortgage. This home loan allows you to convert a portion of your equity into cash. As compared to a traditional second mortgage or a home equity line of credit, reverse mortgage is easy to obtain as you don't have to qualify a debt-to-income ratio. As the name suggests, the pattern of payment is reversed. Instead of paying the lender, you receive money from him.


What are the different types of reverse mortgage?


Reverse mortgage is of 3 main types. These are: 


  • Single-purpose reverse mortgage: Some of the state/local government agencies and non-profit organizations offer this type of reverse mortgage. You can qualify for it even with low or moderate income. A disadvantage of this mortgage is that you can use it only for a single purpose as specified by the lender.  


  • Proprietary reverse mortgage: If you belong to the high income group or have a high home equity, you can obtain a proprietary reverse mortgage. It is a private loan backed by the companies that develop them and so is comparatively expensive. The biggest advantage of this loan is that it can be used for any purpose.


  • Home equity conversion mortgage (HECM): This reverse mortgage is backed by the HUD and hence is also known as federally-insured reverse mortgage. There is no income restriction and you can get a larger loan if you have a higher home appraisal value. You can use HECM for any purpose. 


What are the advantages of a reverse mortgage?


Reverse mortgage provides you with flexible payment options. You can get paid in a lump sum, as periodic payments or a combination of both. Some of the other advantages are:

·        No risk of default: As you don't have to pay your lender, there is no risk of defaulting.

  • No tax liability: The benefits received from this mortgage is tax free.

  • Guarantee to stay on property: Reverse mortgage guarantees you to stay on the property for as long as you live.

Its true that you don't have to repay a reverse mortgage but you must remember that once your home is passed to your heirs, they have to either repay the outstanding balance to keep the home or sell the home to pay off the balance.

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