Reverse Mortgages Simplified
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Reverse Mortgages Simplified

A Reverse Mortgage is a financial tool - a loan - available only to homeowners 62 and older, that allows access to equity in your principal residence which you may have thought was previously inaccessible.  You ALWAYS retain title to your home and share no appreciation with the lender.  You cannot lose your home under normal circumstances, but foreclosure may occur if you do not pay your taxes and insurance and otherwise comply with the loan terms.  

With a Reverse Mortgage, no repayment of principal or interest is required while living in the home (provided you comply with loan terms).  Instead, interest is added to the loan and paid when the house is sold or after you move from the home.  This creates the cash flow often needed to successfully “Age in Place” - remain in your home safely and securely for as long as you wish.

With today’s constantly changing market, Reverse Mortgages are one of the few options available to seniors who want to remain in their homes and need access to equity but may not qualify for a traditional equity line of credit.

There are two general types of Reverse Mortgages loans available in the marketplace -1) those loans backed by the US Government and 2) “proprietary” loans offered by lenders and targeted at higher value properties.

“Proprietary” mortgages are available from only a few lenders at this time – most disappeared in 2007 and 2008.  When more monies became available under the government-backed program, the proprietary Reverse Mortgages became geared to higher value properties.

Currrently, Reverse Mortgages loans available under the Home Equity Conversion Mortgage (HECM) program are backed by the US Department of Housing and Urban Development (HUD) and is insured by the Federal Housing Administration.

In January 2009 the HECM program was expanded to allow eligible borrowers to purchase a new principal residence using a combination of proceeds from a Reverse Mortgage and cash from their pockets.  This program – known as "HECM for Purchase" - made it possible for homeowners to downsize from Mega-Mansion to Cozy-Cottage, often relocating to other geographical areas to be closer to family members.

HECM Reverse Mortgages, whether for equity redemption or purchase, operate under the same HUD guidelines.

Within the HECM offering, there are two categories of Reverse Mortgages loans:  1) those based upon an adjustable interest rate and 2) those based upon a fixed interest rate.  To determine which one may be right for you, there are many considerations including your age, the amount of money you may need to access, the value of your property, your risk tolerance, and more.