Reverse mortgages are financial instruments intended to help seniors better cope with reduced income after retirement and to maintain a higher quality of life in their later years. Provided they own a sizable property and have repaid most of their primary mortgages, homeowners aged 62 and up are eligible to apply for a reverse mortgage in San Diego.
With a reverse mortgage, homeowners receive upfront funds through single payments or monthly installments. Until they move from the property, sell it, or in case of death, borrowers do not have to pay back the loan.
What are the 3 types of reverse mortgages?
Depending on the amount of needed funds, the value of the home, and the borrower’s needs, three types of reverse mortgages are offered, and the borrower must select the one that best suits their needs.
The three types of reverse mortgages are:
1. Single-purpose reverse mortgages
A single-purpose reverse mortgage is offered by state, local, and non-profit agencies. It is the least expensive option for a reverse mortgage loan. The lender specifies the reason why such a mortgage is granted, and the homeowners can use their proceeds only to pay for specific lender-approved items such as house repairs or property taxes.
Although the homeowner does not repay the loan until it is due, charges such as mortgage insurance, interest, and fees reduce the amount the homeowner can borrow.
2. Home equity conversion mortgages (HECM)
HECMs are federally-insured reverse mortgages supported by the US Department of Housing and Urban Development. Although HECMs tend to be more expensive than the traditional reverse mortgage, they are still the most popular reverse mortgage due to the fact that the loan can be used for any purpose, not just specified repairs or taxes.
Qualified homeowners may not be able to borrow the entire value of their home due to the federal government’s mortgage limit on HECMs. As of 2020, that limit is set at $765,600. The borrower may choose a variable rate HECM that includes equal monthly payments or a combination of a credit line, plus fixed monthly payments for a set period. HECMs with a fixed interest rate typically provide a single lump-sum payment.
3. Proprietary reverse mortgages
Proprietary reverse mortgages are used for high-value homes. If a property is valued at more than the $765,600 lending limit for federally-insured HECMs, the homeowner can apply for a higher loan. Since proprietary reverse mortgages are not federally insured, they do not have monthly mortgage insurance premiums (MIPs).
Still, lenders may charge higher interest rates and decide to lend a smaller amount relative to the property value to be able to additionally secure the loan, which is not covered by the mortgage insurance.
A homeowner must be very careful when selecting the proprietary reverse mortgage, calculate all the costs, and compare the various options by obtaining quotes from authorized providers. Various alternatives to home equity loans and mortgages shouldbe considered, including other forms of borrowing, as well as downsizing.
Where can I seek advice for reverse mortgage options in San Diego?
At Downsizing SD, we aim to present you with the most viable solution for your reverse mortgage for seniors. Our team will carefully evaluate the different options available, specific to your situation and needs.
You can rely on us to help you choose what is best for you. For all your mortgage options for seniors and other inquiries regarding the booming real-estate market in San Diego and across the San Diego Bay region, get in touch with Nick Alameddin. We’ll do our utmost to guide you through it all smoothly!