Types of Reverse Mortgages
There are three general types of reverse mortgage loans, including federally-insured Home Equity Conversion Mortgages or HECMs.
Single-Purpose Reverse Mortgage
Single-purpose reverse mortgages are usable only for one stated use, which is specified by the lender. Generally, these loans can be used to pay for home repairs, home improvements or property taxes. This type is only available in select areas and is the least expensive form of reverse mortgage.
Federally-Insured Reverse Mortgage
Also known as Home Equity Conversion Mortgages or HECMs, this type of reverse mortgage is backed by the Department of Housing and Urban Development. It has no medical or income requirements, can be used for multiple purposes, and is widely available.
HECMs make up the majority of reverse mortgages in the country. They’re not a government loan, though they are regulated by HUD and insured by the Federal Housing Administration.
One requirement of applying for an HECM is getting independent counseling from a government-approved agency. The counselor will explain the costs of the reverse mortgage, as well as discuss any alternatives. Your counselor should help you decide on the best way to choose and proceed with your reverse mortgage.
- More about HECMs
- HUD changes to HECM
Proprietary Reverse Mortgage
Proprietary reverse mortgages are privately insured by the banks and companies that offer them. There are only a few available today since they are mostly gotten on higher-value homes ($750,000 or higher) but this may change once property values are more stable. As such, they are commonly called jumbo reverse mortgages, and typically provide more funds than other types.
While they are not regulated like HECMs, most lenders use the same consumer protections as standard practice, including counseling.
Next topic: Features of Reverse Mortgages