Whether you are just getting started with a reverse mortgage loan, or just conducting your research, some of the terms you see can be a bit overwhelming. It is important to understand what a reverse mortgage is and the terminology that is commonly used. Below are some common terms relating to reverse mortgages and what they mean. Understanding these terms can be extremely helpful before getting a reverse mortgage.
1. The Difference Between Reverse Mortgage Loans and Standard/Traditional Loans
A reverse mortgage loan is a loan that allows retirees to borrow against the equity in their homes during their retirement years. Unlike traditional mortgages, borrowers do not have to make monthly payments on a reverse mortgage, however, they are required to pay the property taxes, the property insurance and take care of all maintenance and repairs.
Another difference between a reverse loan and a traditional loan is that reverse mortgage loans are only offered to those who are age 62 or older. This loan is designed to help you remain in your home and have access to extra resources.
2. What is a Reverse Mortgage Calculator and How Does it Work?
A reverse mortgage calculator is intended to give borrowers an idea of the approximate costs, fees, and loan proceeds under the FHA Home Equity Conversion Mortgage (HECM) program.
A reverse mortgage loan calculator works by determining your eligibility and the amount you may qualify for based on your age, the value of your home, and any existing mortgage balance.
3. The difference between Proprietary Reverse Mortgage Loans and Home Equity Conversion Mortgages (HECM)
Proprietary Reverse Mortgages are private loans from private lenders and lack the government insurance of a HECM.
A Home Equity Conversion Mortgage (HECM) is an insured Federal Housing Administration (FHA) loan that allows seniors to obtain a portion of their home’s equity without having to make monthly mortgage payments.
Both loans are regulated by the government regarding how much can be acquired.
4. Funding Alternatives to Obtain with a Reverse Mortgage
There are various options available to obtain your money in a reverse mortgage. One option is to receive your proceeds in one lump sum payment when you close your loan. Another popular option is obtaining a line of credit. This allows you to withdraw money when you need it. If you like the idea of receiving monthly payments, this is also an option in which you receive a monthly payment each month throughout the life of the loan. The final and another popular option is combining any of these options. For example, you can decide to get a lump sum payment then put the rest of the money into a line of credit or obtain monthly payments.
5. Defaulting on a Reverse Mortgage Loan
In a traditional mortgage loan, you enter default if you fail to make your monthly payments. The lender can then begin foreclosure, forcing you to leave your home.
Defaulting on a reverse mortgage loan is quite different since you are under no obligation to make monthly payments. In a reverse mortgage loan, you must continue to live in the home, keep up your property taxes, and any maintenance and upkeep on the home. Failure to follow these guidelines will put you at risk of losing your home.