Are there different types of reverse mortgages?
Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. The HECM program offers several product options.
- Loan type. Borrowers have a choice between two types of loans: A HECM Standard, which allows you to get the highest amount of money from your home, but has higher upfront fees, and a HECM Saver, which offers somewhat less money but has lower upfront fees.
- Payment of loan proceeds. Borrowers can receive their money as a line of credit, monthly cash advance, a combination of these, or a lump-sum.
- Interest rate. Borrowers can choose an adjustable interest rate or a fixed rate. However, as of April 1, 2013, fixed rates are only available on the HECM Saver with a lump-sum payment option.
The HECM program offers two special-purpose loan options for special circumstances. The HECM for Purchase option allows older homeowners to use reverse mortgage proceeds to buy a new home. The HECM Refinance program allows a HECM loan to be refinanced into a new HECM loan in situations where the interest rate has dropped or where the home has gone up in value significantly.
TIP: The best way to see key differences in reverse mortgage product options is to do a side-by-side comparison of costs and benefits. Remember, just because you can borrow a large sum does not mean that’s the best choice for you. Ask your reverse mortgage counselor to help you compare the different options. You can find a HUD-approved counselor by visiting HUD's counselor search page or calling HUD's housing counselor referral line (1-800-569-4287).
TIP: You will get the most in loan proceeds and pay the least amount of interest if you take out the funds only as you need them. This may mean waiting to take a reverse mortgage until you are older, or taking a line of credit or monthly payout instead of a lump sum.
NON-HECM REVERSE MORTGAGES
Single-purpose reverse mortgages are also offered by some government and non-profit organizations. They may only be available in some areas for homeowners with low to moderate income and used only for the purpose specified by the lender (for example home repairs or property taxes).
Some lenders also offer proprietary reverse mortgages, which are not federally insured and are typically designed for borrowers with higher home values.