Reverse mortgage – Types, rates, top companies, and more

A reverse mortgage is a loan taken against your home equity. In simple terms, you put up your house as collateral in exchange for a lump sum credit. The more valuable your home, the better are your chances of getting a high loan amount against the equity. However, it’s not that simple. There are many subtle nuances, types, usage, and rates among the lenders who provide these services. Here we shall understand the details of the same.

Common types of reverse mortgages

• Single-purpose reverse mortgage
  In this mortgage, you apply for a small loan against the home equity and use the money for a specific purpose. Nonprofit organizations or local government agencies usually prefer this type of reverse mortgage for remodeling or renovation purposes.
• Proprietary reverse mortgage
  If you own a home or property of significant value, a proprietary reverse mortgage will fetch you a higher amount. However, the federal government does not offer any backing for this type of credit, and only private institutions provide this loan.
• HECM reverse mortgage
  A Home Equity Conversion Mortgage (HECM) remains the popular option backed by the Federal Housing Administration (FHA). A HECM reverse mortgage allows you to utilize the loan taken for most eligible purposes or expenses.

It is advisable to consider HECM loans as they are federally insured and offered by FHA-approved lenders. It is also easy to avail of and provides flexibility in terms of the loan amount utilization.

How can you use a reverse mortgage?
The loan amount can be used in several ways, especially if you qualify for a HECM FHA-approved reverse mortgage. You can –

• Help your children or grandchildren pay for the existing property
• Delay taking any social security benefits by using the loan as retirement income
• Use the funds to manage investments for future benefits and returns
• Pay for medical expenses that may not be covered under insurance
• Remodel and sell your existing home for a more significant and valuable property upgrade
• Pay off any debts, taxes, or outstanding dues
• Create a better monthly cash flow and be prepared for any emergencies or contingencies

The reverse mortgage rate for 2021
The interest rate depends on the type of mortgage. But the following historical comparison of weekly rates gives us an estimate across most FHA-approved lenders for HECM mortgages.

• Lowest fixed rate – 2.990%
• Lowest adjustable rate – 2.083%

It is important to note that these weekly estimates are subject to change without any prior notice given publicly. You must also be aware of the lending limits as changes in these amounts influence the rates. Lending limits vary depending on the credit institution. However, you don’t have to worry about the loan’s exact cost. Mortgage calculators available online are designed to use algorithms that give you the best current estimate on rates and eligible amounts.

Famous institutions like the American Advisors Group (AAG) and Lending Tree provide free calculators. You will have to enter the home value and mortgage balance details on behalf of the oldest homeowner. These are crucial factors for calculating the interest rate, loan disbursement, and repayment schedules.

Top companies for a reverse mortgage
Here are some of the best companies that offer reverse mortgages:

• American Advisors Group offers the best overall services for a loan against equity.
• Quontic Bank is better suited for long-term, flexible mortgage options.
• Liberty Reverse Mortgage provides for the best credit borrowers.
• Reverse Mortgage Funding LLC. is well-known for its ease of qualifications process.
• Longbridge Financial provides flexible online options for loans.
• Finance of America Reverse is ideal for seniors who want to purchase suitable living spaces.

It’s always a good idea to consult with a company representative to understand the terms of the application in its entirety.