Types Of Reverse Mortgages

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Reverse mortgages are exactly what their name would seem to suggest they are: a way to borrow against the value of your home. Instead of making weekly or monthly payments to your mortgage, a bank or another lender will give you money every month. When you move out of your home or die, the sale value of your home is used to repay the loan. Reverse mortgages are a good way for you to get a little extra spending money every month and can help make it easier to live on a fixed income. However, there are three main types of reverse mortgages, each of which is slightly different from each other. Understanding what each type of reverse mortgage has to offer can help you choose the one that is the best fit for your financial needs.

Single Purpose 

Single purpose reverse mortgages are the most common type of reverse mortgage, largely because they tend to be low in value and are designed to fulfill a goal, which is outlined before the reverse mortgage is approved. Single purpose reverse mortgages are offered by local or state governments, but sometimes also by non-profit financial institutions as well. Generally, single purpose reverse mortgages are given in a lump sum in order to complete some sort of project on the home, such as repairs or renovations, and are a way of easily accessing funds so that you can improve your home's equity. Because the amount of money borrowed tends to be low, these reverse mortgages are seen by lenders as fairly low risk and as such the interest rates tend to be affordable for most homeowners.

Home Equity Conversion Mortgages

Home equity conversion mortgages, also known as HECMs, are reverse mortgages that are offered by the federal government. The advantage of an HECM is that you can choose how the money that you borrow is dispersed, either through monthly payments, as a lump sum, or even as a line of credit. The downside of HECMs is that there is a limit that can be borrowed against: according to the Department of Housing and Urban Development, that limit is $636,150, which means that you may not be able to borrow against the full equity of your home.


Propriety reverse mortgages are offered by private companies and are a way to borrow against more of your home's equity than is allowed by HECMs. This means that these reverse mortgages are ideal for homeowners with high property values, but come with the caveat of having higher interest rates and costs, since these private financial companies will be seeking to make a profit, whereas the federal government does not (in general, of course - it will depend on the financial institution you choose and the value of your home).

Contact a company like Retirement Funding Solutions - Reverse Mortgages for more information and assistance.