General: Different Reverse Mortgage Options

There are many different reverse mortgage options: single purpose reverse mortgages, federally insured reverse mortgages, and proprietary (private sector) reverse mortgages. Each option has different pros and cons that need to be considered when looking into taken out a reverse mortgage.

Single-Purpose Reverse Mortgages

A single purpose reverse mortgage is the lowest-cost type of reverse mortgages to obtain, but as the name indicates it can only be used for one specified purpose. They are typically offered by state or local government agencies. These loans a great for individuals who need cash for a specific purpose like paying property taxes or fixing up there homes. Here are descriptions for several different types of single purpose reverse mortgages:

• Property tax deferral (PTD) mortgages are reverse mortgages that provide loan advances for paying property taxes.
• Deferred payment loans (DPLs) are reverse mortgages providing lump sum disbursements for repairing or improving homes.

Federally Insured Reverse Mortgages

A federally insured reverse mortgage is the only reverse mortgage insured by the Federal Housing Administration (FHA). These reverse mortgage are one of the lowest-cost multipurpose reverse mortgages currently available. Overall they typically provide the largest total cash benefits of all the reverse mortgage options. The proceeds from a federally insured reverse mortgage can be used for any purpose. These loans are also known as Home Equity Conversion Mortgages (HECMs).

Proprietary Reverse Mortgages

A proprietary reverse mortgage is a mortgage product owned by a private company. These type of loans are more expensive then the other reverse mortgage types and should be approached with caution. Anyone looking into these type loans should get a comparison with a similiar HECM. One benefit of proprietary reverse mortgages are the higher home value limits. So, if you live in a home that is worth a lot more than the average home value in your county, a proprietary loan may give you greater loan advances than a Home Equity Conversion Mortgage (HECM).

As with any financial decision, you should get professional help to help you decide which option is best for your situation. Reverse mortgage counselors can help you evaluate each of your options and help you make an informed decision.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.

Case Study: Reverse Mortgage Case Study - Long Term Care

Here is another good case study showing how reverse mortgages can be used for more than just supplimental retirement income. This case study illustrates how a reverse mortgage can help with long term care expenses.

Long Term Care Reverse Mortgage Case Study

A 65 year old couple is concerned that they have not saved enough money to cover long term care expenses and excessive medical costs. Their investment properties and pension provide a comfortable level of income today, but they are worried it may fall short in the future.

Their assets include a highly appreciated $2.2 million waterfront property with a detached rental cottage. If they sell the property outright they will lose $275,000 to capital gains taxes.
One solution is for them to take out a reverse mortgage against their property. They would recieve $800,000 line of credit from the reverse mortgage. They could then use part of the line of credit to purchase a SPIA (Single premium immediate annuity) and use the annuity payments to pay the monthly premiums on a long term care policy. The remaining portion of the reverse mortgage line of credit can be used to cover future medical expenses.

As the property appreciates in value of time, it's possible for the appreciation to far exceed the withdraws that are used to cover their future medical expenses. After 25 years (age 90 for the retirees) the balance on their reverse mortgage will be between $2 and 3$ million depending on the fequency and timing of their line of credit withdraws. If their home continues to appreciated at 6% over the same 25 years, it will grow in value to over $8.8 million.

This would provide their heirs with a significant estate at the same time providing the security and liquidity that the couple feels they need to pay for future health care and other expenses.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.