Understanding Reverse Mortgages

When you make a loan against a home that you already own, this is commonly known as a reverse mortgage. You can borrow against equity once you have paid down a home, and take out funds to pay other expenses. Many people use this to purchase a second or investment property. It can also be known as a Home Equity Conversion Mortgage (HECM). Before you take this step, do your research and ensure that you understand reverse mortgages thoroughly. Nickel City Funding, Inc. helps Orchard Park, NY homeowners understand reverse mortgages.

How Reverse Mortgages Work

Consider how you pay your lender each month as you hold your home mortgage. Now, imagine that those payments are coming back to you—this is the simplest way to understand a reverse mortgage. However, this does not happen without a cost. These payments are coming from the equity that you have built up in the home. While this may solve many problems, you need to be sure it is the right way to meet your financial goals. You are essentially taking an advance on the equity of your home, which can go up or down in value. Some people sell their home to pay a reverse mortgage. In addition, if you do not pay it back, your estate or spouse may be on the line. Some say that reverse mortgages can carry many costs.

Single-purpose Reverse Mortgages

A single-purpose reverse mortgage is one type of program. It usually comes with fewer costs than others do. Many nonprofit or government agencies offer an array of single-purpose reverse mortgages. The program is commonly named after its sponsor or the type of cost that it covers. For example, many programs are for home repairs, to pay off debt, or to renovate a home. The nonprofit or government sponsor will designate the purpose of the loan.

Home Equity Conversion Mortgages

A Home Equity Conversion Mortgage (HECM) is one of many reverse mortgage programs. HECMs are a government-sponsored product. The amount you can get in this type of loan is often determined by your age: older people usually have more equity built in the home. Many seniors take advantage of this. HECMs will come with costs, including closing fees. You have to be assessed by a government-approved housing counselor who will review your income. They will also determine your home value and your ability to pay the funds back. If you are not approved, then the housing counselor may make other recommendations.

Proprietary Reverse Mortgages

A proprietary reverse mortgage refers to one created by a private lender or bank; the housing counselor may suggest this if you cannot get government backing. You may be able to get a larger loan through this program if your home qualifies, particularly if you have a high home value. You will be evaluated for your ability to repay the loan, as well.

Nickel City Funding, Inc. is here to help answer your questions about reverse mortgages. Contact our Orchard Park, NY staff today for additional support!