A senior citizen, aged 62 or older, wishing to access the cash equity of his/her home without having to repay the loan until the property is vacated either by demise or sale, currently has four (4) types of reverse mortgages to consider. The following article outlines the similarities and differences in each.
The first type of reverse mortgage is commonly referred to a Home Equity Conversion Mortgage (HECM). A Home Equity Conversion Mortgage is guaranteed by the Housing & Urban Development Organization (HUD) and the Federal Housing Administration (FHA). These loans provide a maximum loan amount, can include a line of credit that can appreciate depending on your home’s value and offers multiple payment options. This type of reverse mortgage is the most frequently utilized.
The second type of reverse mortgage is offered by Fannie Mae and is known as the Homekeepers Reverse Mortgage. It is similar to the Home Equity Conversion Mortgage in that a maximum loan amount is specified, however, the line of credit does not appreciate. Typically the Homekeepers Reverse Mortgage has lower fees and closing costs than the reverse mortgages offered by HUD. The Homekeepers Reverse Mortgage allows the borrower to purchase a different home using the equity in his/her current home.
The California-based Financial Freedom Senior Funding Corporation has provided the fourth type of reverse mortgage since 2004, when they launched the Simply Zero Cash Account. This reverse mortgage offered by this program eliminates all up-front costs. A borrower must draw 100% of their maximum loan benefit at loan closing, however, the interest rate remains unchanged.
Finally, the last type of reverse mortgage is what is known as the Private Cash Account, initiated by the same California-based organization, Financial Freedom Senior Funding Corporation. This type of reverse mortgage is reserved primarily for homes having an equity value of $500,000 or more. Closing costs are typically higher than both the HUD and Homekeepers Reverse Mortgages, but like the HUD programs, these loans have flexible payment options and have a line of credit that can appreciate.
With any reverse mortgage, once funds are accessed, interest starts to accrue. To insure that a potential borrower, qualifying for a reverse mortgage loan, is fully aware of the advantages and potential pitfalls, it is required that they be thoroughly versed in the specifics by participating in a program explaining reverse mortgages through an independent and approved housing counseling organization.