My Retirement Blog

These kinds of reverse mortgages are a lot like Home Equity Conversion Mortgages in that you can do whatever you want with the money, but they differ in who offers them - these are offered by private companies and are really private loans. Again, more expensive than the single purpose reverse mortgage, but in turn you get the freedom to do whatever you want with the funds.

Some other differences are that HECMs will usually offer larger loans at a cheaper cost compared to the proprietary loans but proprietary loans will be more likely be larger overall. If you need the most amount of money and you’re less concerned with cost, a proprietary reverse mortgage will be more in line with what you want.

Home Equity Conversion Mortgages are another name for federally-insured reversed mortgages and they’re backed by the US Department of Housing and Urban Development. HECMs are generally more expensive than other loans, have higher up front costs and are generally worse in terms of cost if you leave your home soon after security in the reverse mortgage. In return for paying the higher costs, there are no income restrictions and you are free to use the money however you please.

With an HECM, you will have to first meet with a counselor from the government-approved housing counseling agency so that you fully understand all the costs and they’ll give you some alternatives (at least they should). If you want the reverse mortgage because you need to perform some repair work on your home, they will point you towards single purpose reverse mortgages instead because they’re cheaper.

A single-purpose reverse mortgage is one of the three main types of reverse mortgages and they are offered by state and local government agencies and non-profit organizations. The benefits of single purpose reverse mortgages are that it’s generally very cheap in terms of costs but they’re not available everywhere and can only used for the one purpose specified by the organization that offers the reverse mortgage. For example, some of them specify that you can only use it for repairs or improvements while others say you must use it for taxes. Another knock against single purpose reverse mortgages is that you can only qualify if you have moderate to low income.

A reverse mortgage is exactly what it sounds like, it’s a lot like a regular mortgage except the bank pays you. Okay, it’s a little more complicated than that, but that’s the jist. What actually happens it the bank gives you a loan and you don’t have to repay the bank until you die, sell your house, or stop living there are your primary residence. There are other conditions most banks require and that is that you must live in your home (part of the first group of conditions) and that you’re over 62. Some other bonuses of reverse mortgages are that the proceeds are generally tax-free and there are often no income restrictions on who is eligible. They mostly allow house-rich but cash poor individuals to extract some equity from their home so that they can live on it in retirement (hence the 62 age restriction).

There are three types of reverse mortgages: single purpose reverse mortgage, federally-insured reverse mortgage, and there are proprietary reverse mortgages. We’ll discuss the three different types in the next few days.