Reverse mortgages are quite different from any other loans, and the risks to borrowers are unique. Before considering one, you need to do your homework carefully and thoroughly.
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA’s HECM provides these benefits.
You can also use a HECM to purchase a primary residence. This is commonly called a reverse purchase.
With most reverse mortgages you have a wide range of payment options, one of which may be ideal to meet your financial needs:
- Lump Sum: You can choose to receive the money all at once or as a lump sum.
- Monthly Income: You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as a principal residence. You can choose to receive equal monthly payments for a fixed period of months.
- Line of Credit: You can get a line of credit; which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
- Combo: You can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the home.
