Designed to cater to the financial needs of the senior citizens of the country, various types of reverse mortgage loans have managed to bail out many an elderly person from financial crisis. Reverse mortgage may be defined as a situation when an individual borrows money against his home equity. However, he is not required to make payments till the time the house (property mortgaged) has been sold. Once the mortgage property is disposed off, the principal amount together with the interest(depending on the loan duration) is paid off. This gives a steady income to the senior citizens. There is one cause of concern and that is the APR or annual percentage rate for reverse mortgages are higher as compared to the various other schemes of traditional mortgages.
The following types of reverse mortgage loans are recognized:
Single Purpose Reverse mortgage
Home Equity Conversion Mortgages
Proprietary Reverse Mortgage
(I) Single Purpose Reverse Mortgage:
This type of reverse mortgage loan is meant for the senior households with income ranging between low to moderate. The proceeds of this type of reverse mortgage is used for expenses related to property and home. These may include renovation, household structure enhancements and payment of taxes.
(II) Home Equity Conversion Mortgages:
This type of reverse mortgage loan is also referred to as Federally Insured reverse mortgage. It usually has the backing of HUD or Housing and Urban Development. More expensive than the earlier reverse mortgage type, it can be used for various purposes and not just a single purpose.
(III) Proprietary Reverse Mortgage:
Proprietary is the third type of reverse mortgage loan. These loans are insured by the lending firms, which create them. The difference with HECM loans is that the proprietary loan does not require a borrower to consult with a counselor prior to applying for the loan.
Factors affecting the types of reverse mortgage loans:
The following factors are taken into account while granting loans to individuals.
Rate of interest
Age of borrowing individuals
Location
Value of home