Homemade Money: A Consumer's Guide to Reverse Mortgages
Session 1 - Starting in Reverse: Using This Seminar
Course Section
Chances are, no one you know has ever taken out a reverse mortgage. That's because a reverse mortgage—a type of loan against your home that you don't have to pay back for as long as you live there—is a relatively new idea. By January 2002, only about 90,000 of these loans had been made in the United States. Expect to hear more about reverse mortgages in the future, though. With more Americans than ever looking to tap into home equity, the market for these loans is likely to grow in coming years.
A new choice—but a complex one
Because reverse mortgages are so new, it can be a challenge to gather all of the facts needed to decide whether such a loan is right for you. Few professional advisors have any experience with these loans, which are quite a bit different than other kinds of debt. Even savvy financial experts are often surprised to learn just how complex these loans can be. That's why you need to be sure that you've done your homework before accessing the home equity you've spent years building up.
Finding your way
This seminar will help you to understand, analyze and ultimately shop for a reverse mortgage. Due to the complexity of the subject, it is recommended that you read through the sessions in order.
Alternatives first
In session 2, you'll be introduced to a variety of alternatives to reverse mortgages. By reviewing other options first, you'll be better prepared to evaluate the costs and benefits of reverse mortgages. You may also find another financial solution to combine with a reverse mortgage or settle on a better way to meet your needs.
Homemade money
Session 3 describes reverse mortgages, compares them to other loans, and defines the basic features that most reverse mortgages share.
Reverse choices
Session 4 defines and compares the three main types of reverse mortgages: single purpose, federally insured and proprietary loans. You'll learn to identify the most important considerations in choosing a loan type.
The fine print
Sessions 5-8 provide more detail on the three types of reverse mortgages introduced in session 4:
- Single-purpose reverse mortgages ( session 5) are almost always the least expensive variety of reverse mortgage. But these loans may be used only for specific purposes—such as paying property taxes or financing home repairs. Eligibility is often limited, and these mortgages are not available in many areas.
- Federally insured reverse mortgages ( session 6 and session 7), also known as Home Equity Conversion Mortgages, come with a moderate price tag and generally provide the largest loan advances. They can be used for any purpose and are widely available throughout the United States.
- Proprietary reverse mortgages ( session 8) are typically the most costly of the reverse mortgage options. Larger loan advances are generally available only to those homeowners whose homes are worth substantially more than the median home value in a given area.
Learning the lingo
Don't be surprised if, when working through the sessions, you encounter terminology that is unfamiliar; many of these words are unique to the reverse mortgage market. Session 9, a comprehensive glossary, provides a chance to review these new terms.
Glossary
Reverse mortgage: A loan against home equity providing cash advances to a borrower and requiring no repayment until a future time.
Home equity: The value of a home minus any debt against it.
Single-purpose reverse mortgages: Loans that can be used for only one specified purpose—for example, to repair your home or to pay your property taxes. Loans of this type are generally the lowest-cost reverse mortgages you will find. Most often, they are offered by state or local government agencies.
Federally insured reverse mortgages: The only reverse mortgages insured by the Federal Housing Administration (FHA). These loans are the lowest-cost multipurpose reverse mortgages available, and in most cases they provide the largest total cash benefits. Also known as Home Equity Conversion Mortgages (HECMs).
Proprietary reverse mortgages: A reverse mortgage product owned by a private company. 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 federally insured reverse mortgage.
