Types, Shopping and Precautions
Reverse Mortgage Types
The three basic types of reverse mortgage are:
- Single-purpose reverse mortgages, which are offered by
some state and local government agencies and nonprofit organizations
- Home Equity Conversion
Mortgages (HECMs), which are federally-insured
reverse mortgages backed by the U. S. Department of Housing and
Urban Development (HUD)
- Proprietary reverse mortgages, which are private loans
that are backed by the companies that develop them
Single-purpose reverse mortgages generally have very low costs,
but they have a number of limitations. They are not available everywhere;
they can be used only for one purpose specified by the government
or nonprofit lender (such as to pay for home repairs, improvements,
or property taxes); and in most cases you must have a low or moderate
income to qualify for these loans.
Home Equity Conversion Mortgages (HECMs) and proprietary reverse
mortgages tend to be more costly than other home loans, but they
are widely available, have no income or medical requirements, and
can be used for any purpose.
Reverse Mortgage Shopping
Reverse mortgages vary according to their costs and terms, so
shop around and compare features to find the type best-suited for
If you want to make a home repair or improvement or need help
paying your property taxes, you may want to find out if you qualify
for any low-cost single-purpose loans that may be available in
your area. Area Agencies on Aging (AAAs) generally know about these
programs. To find the nearest agency, visit the Eldercare
Locator (or call toll-free, 1-800-677-1116). Ask
the AAA for information about available “loan programs for
home repairs or improvements,” or “property
tax deferral” or “property tax postponement” programs.
If you are interested in a federally-insured HECM, know that all
HECM lenders must follow HUD rules, and that many of the loan costs
including the interest rate will be the same no matter which lender
you select. Still, some costs including the origination fee, other
closing costs, and servicing fees may vary among lenders.
If you live in a higher-valued home, you may be able to borrow
more from a proprietary reverse mortgage. But it generally will
cost more. The best way to see key differences between a HECM and
a proprietary loan is with a detailed side-by-side comparison of
future costs and benefits. Many HECM counselors and lenders can
provide you with this important information.
No matter which type of reverse mortgage you are considering,
be certain you understand all the conditions that could make the
loan due and payable. Ask a counselor or lender to explain the
Total Annual Loan Cost (TALC) rates, which show the projected annual
average cost of a reverse mortgage, including all itemized costs.
Reverse Mortgage Precautions
Be cautious if anyone tries to sell you something, like an annuity,
and suggests that a reverse mortgage would be an easy way to pay
for it. If you do not fully understand what they are selling, or
you are not sure you need what they are selling, be even more skeptical.
Keep in mind that your total cost would be the cost of what they
are selling plus the cost of the reverse mortgage. If you think
you need what they are selling, shop around before you buy.
Before considering any reverse mortgage, consult with family members,
your attorney, or financial advisor, and be sure to understand
the tax consequences of the particular plan you are considering.
No matter why you decide to take a reverse mortgage, you generally
have at least three business days after signing the loan documents
to cancel it for any reason without penalty. Remember that you
must cancel in writing. The lender must return any money you have
paid so far for the financing.
The federal Truth in Lending Act (TILA) is one of the best protections
you have with a reverse mortgage. TILA requires lenders to disclose
the costs and terms of reverse mortgages. This includes the Annual
Percentage Rate (APR) and payment terms. If you choose a credit
line as your loan advance, lenders also must tell you of charges
related to opening and using your credit account.
If you suspect that anyone is violating the law, let the counselor,
lender, or loan servicer know. Then, file a complaint with:
- Your state Attorney General’s office or state
banking regulatory agency
- The Federal Trade Commission (FTC); by phone,
toll-free, at 1-877-FTC-HELP (1-877-382-4357)
The information provided in this website is
not legal advice and should not be interpreted as legal advice.
This website is intended to provide a basic understanding of this
information in summary form. This information may not be comprehensive,
is subject to change, and may not apply to all individual circumstances.
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government agencies or with an attorney, particularly as it relates
to your individual circumstances. Your use of this website indicates
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