Reverse Mortgages Comparison - What are the loan types?

Reverse mortgage is a financial planning tool that helps seniors remain in their homes, and supplement their retirement income. It is also an option that most seniors use for their healthcare expenses, home modification purposes and also for maintaining cash reserve. These home loans are available in three forms as given below:

Home Equity Conversion Mortgage or HECM is the only FHA insured reverse mortgage available to seniors who are at least 62 years old. The FHA (Federal Housing Administration) insured loan guarantees that you will receive the loan advances even if your lender defaults.

You should occupy a single family home or condominium as your primary residence. Usually these home loans are available at adjustable rates. The monthly payment depends on how quickly your loan balance grows but not on the variation in rates. You can also change the mode of payment at minimum cost.

The FHA-Insured loan for seniors has the following payment options:

• A line of credit.


• Monthly loan advances for a specified period or a long as you wish to occupy the property.


• Monthly loan advances along with a line of credit.

These home loans are available in monthly loan advances or loan advances along with a line of credit for as long as you occupy your residence. The lender may charge you a fixed or adjustable rate along with mortgage insurance premiums (fixed or variable) and other loan fees.

Lender insured home loans often provide higher loan advances compared to FHA-insured reverse mortgages. You may also qualify for a loan amount less than your home value. These loans require you to pay higher costs than those insured by the FHA.

Some lenders also offer an annuity that pays you monthly even if you sell off the home and move out. But the annuity payments may require taxes and affect your eligibility for Supplemental Security Income and Medicaid. These may also include additional charges that depend on increases in your home value during the loan period.

Seniors can avail monthly loan advances for a fixed period only. Your loan becomes payable when you stop receiving the loan advances. With this kind of a loan, you will be offered a fixed rate of interest. No mortgage insurance premium is required for this loan. The loan fees are quite lower than that of lender-insured and FHA-insured mortgages.

An un-insured loan is a suitable option when you need short term but substantial amount of cash. It allows you to avail higher monthly advances unlike all other plans.