Reverse Mortgage

What is a reverse mortgage and how does work ?

A reverse mortgage is a type of loan that allows homeowners aged 55 or older to access the equity in their home without having to sell it. The loan is secured against the property, and there are no monthly repayments required. Instead, the interest on the loan is rolled up and added to the principal, which is repaid when the borrower dies, moves out of the property permanently, or sells it.

In the UK, a reverse mortgage is also known as a lifetime mortgage.

To qualify for a reverse mortgage, you must meet the following criteria:

• You must be aged 55 or older.
• You must own your home outright or have a small mortgage remaining.
• The property must be your main residence.
• You must live in the UK for at least six months of the year.

The amount of money you can borrow will depend on the value of your home and your age. For example, if your home is worth £100,000 and you are 65 years old, you could borrow up to £40,000.

There are two main types of reverse mortgages:

• Drawdown mortgage: This is the most common type of reverse mortgage. With a drawdown mortgage, you can take out a lump sum of money or a series of smaller payments whenever you need them.
• Line of credit mortgage: This type of reverse mortgage gives you access to a line of credit, which you can draw on as and when you need to.

Reverse mortgages can be a useful way to access the equity in your home to pay for things like:

• Home improvements
• Healthcare costs
• Retirement expenses

However, it's important to remember that reverse mortgages are loans, and you will eventually have to repay them. If you don't have enough equity in your home to cover the loan, you may have to sell your home to repay it.

It's also important to note that reverse mortgages can be expensive. The interest rates on reverse mortgages are typically higher than traditional mortgages, and there are other fees associated with the loan.

If you're considering a reverse mortgage, it's important to speak to a financial advisor to get independent advice.

please explain each type of reverse mortgages.

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Sure. There are three main types of reverse mortgages:

• Home Equity Conversion Mortgage (HECM): This is the most common type of reverse mortgage. It is insured by the Federal Housing Administration (FHA). HECMs offer a variety of features, including:
  • No monthly mortgage payments.
  • The ability to borrow up to 75% of your home's equity.
  • The ability to borrow a lump sum, a stream of monthly payments, or a line of credit.
  • The ability to stay in your home as long as you live there.
• Proprietary reverse mortgage: This type of reverse mortgage is not insured by the FHA. Proprietary reverse mortgages typically offer higher loan limits and more flexibility than HECMs, but they may also have higher interest rates and fees.
• Single-purpose reverse mortgage: This type of reverse mortgage is designed to be used for a specific purpose, such as home repairs or medical expenses. Single-purpose reverse mortgages typically have lower interest rates and fees than HECMs or proprietary reverse mortgages, but they also have lower loan limits.

The type of reverse mortgage that is right for you will depend on your individual needs and circumstances. It is important to speak to a financial advisor to get help choosing the right reverse mortgage for you.