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Types of Reverse Mortgages

As you know reverse mortgage is something that is only available to seniors who are over the age of 62 and are eligible. There are two main types of mortgages that are categorized under reverse mortgages. These are called Home Equity Conversion Mortgage (HECM) and Non – Home Equity Conversion Mortgage (Non-HECM). Firstly, we will talk about the HECM plan, and how it works.

Basically, the HECM allows an eligible senior to pull out money from the existing equity in their home in the following modes; monthly payments for life or a term, one bulk payment, or in a LOC. The main reasons why elders would take upon this opportunity is to be able to purchase a home. As most other loans, you have to be eligible. To be eligible you would need to own your home, or atleast have a low remaining balance on the existing mortgage, this way you can pay it off at closing. You must be at this location for your lifetime, if you sell it or default, the lender has has the obligation to request a repayment of the money taken out. In the recent years, mortgage brokers/advisers have noticed that seniors have been victims of some fraudulent schemes carried out by some institutions. Due to this problem, some reputable institutions would send their clients to certain education courses, where they will be taught about some very useful information.

The following factors are taken into account when calculating the total amount given; the age of the client, the home\’s present value and the interest rate. The borrowers have certain options which will allow them to pick how they want payments made.

  1. The borrower will get payments every month until the end of his lifetime as long as he will abide all regulations.
  2. The borrower will get payments every month for a fixed time period set at the beginning.
  3. The borrower will get a line of credit, which will enable him/her to make unlimited withdrawals.
  4. Option 1 + Option 3
  5. Option 2 + Option 3

The fee\’s for a HECM reverse mortgage range anywhere between $2500 and $6000. It usually depends on the homes value and the loan lender will take a certain percentage of that value.

Now onto Non-HECM loans, they are very similar to HECM type loans. However, there are certain differences. The good thing about this type of loan is that the limit is much higher when compared to a HECM loan. Now, every good thing comes with a tag attached that reads \”Disadvantage\”. The disadvantage is that they aren\’t covered federally, which means they will cost more.

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