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Reverse mortgages, at least the government-backed variety that about 90 percent of borrowers choose, have undergone significant changes in recent months. Here’s what anyone considering a Home Equity Conversion Mortgage (HECM) should know about reverse mortgage pros and cons.
Reverse mortgage options
There are three types of reverse mortgages. They are:
- Single-purpose. Offered by local, state, and non-profit agencies, this reverse mortgage is used to fund a single purpose, such as paying for home repairs or property taxes.
- Home Equity Conversion Mortgage (HECM). Backed by the U.S. Department of Housing and Urban Development (HUD), an HECM is the most popular type of reverse mortgage. There are no restrictions on how you can use the money and there are several payment options that offer flexibility with how you tap into your home’s equity.
- Proprietary. Available through private lenders, these reverse mortgages allow borrowers to receive large sums of cash, but are only available to those whose homes appraise at high values.
LendingTree Pro Tip. If your partner is a co-borrower, both you and your partner will be able to keep living in the house even after one of you passes.
Reverse Mortgages in 2017
Changes to reverse mortgage laws eliminated some of the cons that used to be associated with these loans. Non-borrowing spouses who are not on the property title (as long as they’re married before taking out the reverse loan) can no longer be evicted if the borrowing spouse dies or enters a nursing facility. New financial assessments and impounding largely eliminate the risk of foreclosure. And mortgage insurance premiums for most borrowers have come down. However, one less positive change is that, in many cases, homeowners can borrow against a lower portion of their property value than they could in the past.
Is a reverse mortgage a good idea?
There are so many factors when it comes to getting a reverse mortgage, that we can’t answer yes or no for you. Consider the reverse mortgage pros and cons, get multiple quotes, and talk to friends and family before making a decision. Also, answer the following questions:
- How much will a reverse mortgage cost?
- Is there an alternative way to achieve your financial goal?
- Do you have heirs you plan to leave your home to?
- Do you plan to live in your home for a long time?
- Can you continue to pay your property taxes and homeowner’s insurance?
LendingTree Pro Tip. Considering a reverse mortgage, but not sure if it’s right for you? Find a HUD-approved housing counselor who can explain reverse mortgage pros and cons in detail.