Single Purpose reverse mortgage: State and local government agencies usually offer this type of loan in which the borrower may use the proceeds in only one specific way. For example, the borrower may use the proceeds for home repairs or payment of taxes.

Proprietary reverse mortgage: Private lenders offer this type of reverse mortgage, which is not insured by the federal government. Borrowers may use the loan proceeds for a variety of purposes. Proprietary reverse mortgages may be more suitable for upper-income borrowers with high value homes.

Reverse Mortgages insured by the Federal Housing Administration (FHA): The Home Equity Conversion Mortgage (HECM) is a reverse mortgage insured by the federal government through FHA. FHA insures participating lenders against losses on HECM loans, and designs and administers the guidelines governing lender and borrower eligibility and use of HECM loans. Borrower may use a HEC for any of the following purposes:

• Paying off any existing forward mortgage
• Accessing home equity of a current residence (after satisfying any outstanding mortgage debt on the property)
• Refinancing the HECM
• Purchasing a new residence and obtaining a reverse mortgage in a single transaction.

To qualify for a reverse mortgage applicants must be over 62 years old and must have paid off all or most of their mortgage (the reverse mortgage will pay off whatever is left of their original mortgage before qualified applicants receive any money, so if they have a large balance on that mortgage, a reverse mortgage won't work for them). They must also meet with a HUD-approved counseling agency before signing up. Their home can be any single-family residence, including a condominium or mobile home, as long as it's their principal residence.

The size of the loan is generally determined by a combination of factors including the homeowners' age, the available interest rate, and the value of their home. As a rule of thumb, the older they are, the larger a percentage of the home's value they can borrow. One important restriction for government-insured loans: A reverse mortgage amount is capped by the maximum Federal Housing Administration (FHA) mortgage limit for the area. HECM lending limits are tied to the FHA loan limits for your area or the appraised value of your home, whichever is less. Thus, owners of higher priced homes cannot borrow with a HECM more than the FHA loan limit for the area. Additionally, the amount you will receive depends on the interest rate and your age. Also, HECM lending limits will depend on the age of the youngest co-borrower, if borrowers are more than one.

HECM limits are set by law. The maximum HECM loan amount is the lesser of the FHA loan limit or the home’s appraised value.

The loan limit on a HECM for purchase is the lesser of the FHA loan limit, the appraised value or the sales price.

Proprietary reverse mortgages may have higher loan limits than HECMs, or no limits at all. Clients may want to consider proprietary products if they have a home with a high property value.

Line of Credit The lender may offer the borrower HECM proceeds through a line o credit. The borrower may access the money at any time until the line of credit is exhausted. The line of credit is exhausted when the loan balance equals the net principal limit. As with any HECM payment plan, a borrower with a line of credit who uses up the entire principal limit may stay in the home as long as he or she continues to pay homeowners insurance real estate taxes and makes any necessary repairs.

The unused portion of the line of credit grows at the “credit line growth rate” which is equal to the note rate. This is the same rate at which the principal limit and the loan balance grow, which is the current interest rate plus 0.5 percent.

Proprietary reverse mortgages may have a lower credit line growth rate, or no credit line growth at all, which will affect the amount of cash available to the borrower over the life of the loan.

Tenure The borrower receives equal monthly payments as long as the borrower maintains the primary residence in the home. Even if the loan balance exceeds the principal limit of the loan, the borrower will continue to receive payments.

Term Borrowers choose a fixed period of time during which they receive equal monthly payments. At the end of the term, the borrower may remain in the home as long as they fulfill their obligations under the terms of the mortgage by paying their property taxes and hazard insurance and maintaining the home.

Combination Payment Plans Borrowers may combine a line credit option with term or tenure payment options. Modified Tenure combines a line of credit with monthly payments for a fixed period determined by the borrower.

Throughout the term of a reverse mortgage, the borrower retains ownership of the home. The title will remain with the borrower or the borrower’s estate until the home is sold.

The borrower must pay property taxes and hazard insurance. At the borrowers’ request, the lender may withhold funds to pay these costs on borrowers behalf.

The borrower must maintain the condition of the property as it was when the lender approved the reverse mortgage. If the borrower fails to maintain the property, the lender may notify the borrower of the deficient condition, indicating the necessary repairs. If the borrower does not begin repairs within 60 days, the lender may declare the loan due an payable.

Nearly everyone with a home mortgage is familiar with the concept of a home equity loan: the lender loans a lump sum or gives access to a line of credit with the home as collateral. As homeowners make monthly payments, they build up equity in the home, eventually owning the property outright.

As its name suggests, a reverse mortgage turns the concept of the traditional home equity loan on its head. Under a reverse mortgage, the homeowners convert the equity they've built up over time into cash, in the form of either a lump sum, a monthly payment to the owner, or a line of credit. Unlike a traditional home loan, a reverse mortgage has no monthly payments -- no repayment is required until the owners sell the home or are no longer using it as a principal residence. The lender recovers the principal plus interest (interest rates are tied to U.S. Treasury bond rates, and over the life of the loan they can range from 2 percent to 10 percent, depending on which type of reverse mortgage they choose). When the home is sold, the remaining equity in it goes to the homeowners or their heirs.

Federally insured loans are subject to stricter requirements and tend to have lower lending limits than private reverse mortgages, but they offer the security of government backing. Privately backed reverse mortgages may offer more options -- for example, allowing homeowners to mortgage less than the full value of their house, which government-backed loans typically require -- but they may involve higher costs than government-insured loans.

Uninsured loans usually provide monthly payments for a fixed term. Unlike insured reverse mortgages, which are due only if the homeowners sell their house or in other strictly qualified circumstances, uninsured reverse mortgages are usually due in full at the end of the term.

Generally, HECM lending limits for you will be around 25% of your equity if you are 65, around 40% if you are 75, and around 60% if you are 85. Closing costs are omitted from this approximation.

HECM payment plans may vary among tenure (monthly payments for as long as one of the borrowers remains living on the property); term - monthly payments for a fixed number of months; line of credit, and a combination of those.

HECM payments may be restructured for a small nominal fee should borrowers' circumstances change.

NID-HCA offers both educational workshops and confidential individualized counseling sessions for interested individuals and families. Please contact an NID-HCA office in your area to schedule an appointment.

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