Reverse mortgages have many benefits in the right situation. It is important that you understand the facts about reverse mortgages. You might be interested in a reverse mortgage but may have concerns or fears from common misconceptions about reverse mortgage products(The truth about Reverse Mortgages: facts vs. fiction). Maybe you have seen reverse mortgages advertised on television or heard about them from a friend and are not quite sure what they are or how they work. Perhaps you already know what a reverse mortgage is, but you’re not sure if it is right for you. You could be wondering if a reverse mortgage would work for your parents.
Whether or not to pursue a reverse mortgage is a serious decision and understanding the facts is the best way to learn if a reverse mortgage program is right for you.
Depending on your situation, a reverse mortgage may or may not be appropriate for you. Learning from the experts at Reverse Freedom is the best way to understand the facts and make an informed decision.
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*As with any mortgage, you must continue to make payments for property tax, insurance and maintenance as well as comply with the loan terms.
HECM – pronounced “Heckum”
The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM). Although there are other reverse mortgage programs, unless noted otherwise this is the reverse mortgage we are referring to. HECM’s are provided directly from a private lender, and are insured by the federal government through the Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD).
Before we get into the discussion of Reverse Mortgage Basics , let’s find out what a reverse mortgage is.
What is a reverse mortgage?
A reverse mortgage is a financial tool that allows you to utilize the equity in your home without having to sell it or make payments. Like the name implies, a reverse mortgage is the reverse of a traditional mortgage.
The value of your house is divided into two parts: the equity (the amount of the house you own) and debt (the amount owed on the house). With a traditional mortgage you make payments to the lender each month, increasing your equity and decreasing your debt. Eventually through continued payments you own 100% of your home.
With a Reverse Mortgage, the lender gives you money instead.
Essentially, you are getting back the equity in your house through a loan. Thus, a reverse mortgage reduces your equity and increases your debt. While you are in the home, you do not need to make any payments to the lender and title to the home remains in your name or the name of your trust.
Most people get a reverse mortgage on a home they already own and live in. However, you can also get a reverse mortgage to purchase a new home, assuming you will make the home your primary residence. If you sell your home and use some of the cash proceeds as a down payment you can use a reverse for purchase home loan to acquire the new house. This works well for those who do not want to tie up all of their money in a house in case they have unexpected expenses, want increased cash flow in retirement, or those who cannot afford to pay a monthly mortgage payment. You could always purchase the home with cash and get a reverse mortgage later, but it can be convenient to do both at the same time.
The HECM is the most common reverse mortgage program, its rules and features are set, and it is the most common loan in reverse mortgage financing. Unless otherwise noted, the term Reverse Mortgage refers to a HECM . However, we do offer other programs that have varying features to tailor fit the best loan option to your situation.