In a regular mortgage, a homeowner is a borrower and pays the lender monthly payments. The equity on your home keeps building as you pay off the loan. Home equity is your share of your house against the balance mortgage. If your home is worth $350,000 and your mortgage balance is $150,000, your home equity is $200,000. Property reverse mortgage is a tax-free loan the lender pays monthly from your home equity.

Read to know more about property reverse mortgage works and their types.

How does a property reverse mortgage work?
A reverse mortgage is available for homeowners above 62 years having considerable home equity. The lender pays the loan as a lump sum, monthly payment, credit line, or a combination of these options. The homeowners do not have to pay the reverse mortgage back, and only pay interests on the equity received. With a reverse mortgage, homeowners can convert their equity into income. There is no change in the property’s title and continues to favor the homeowners. The equity dips and a homeowner’s debt rises as long as the reverse mortgage is on.

Three types of reverse mortgages

Home equity conversion mortgage (HECM): These loans are the most common reverse mortgages and are insured by the Federal Housing Administration (FHA) with an upper loan limit of $765,600.

Proprietary reverse mortgages loans: These loans are not insured by FHA but offered by private lenders.

Single-purpose reverse mortgages: The loan can be used only for specified purposes. These loans are not insured by FHA and are offered by non-profit organizations, state, local governments, and private lenders.

Important points about a property reverse mortgage

• The property, either a house, townhouse, or manufactured home, must have been built after June 15, 1976.
• There are no credit score requirements.
• Homeowners should be above the age of 62, have substantial equity of a minimum of 50%, and live in the property.
• If you want to use the funds from a reverse property mortgage to settle debts, you should first settle any debts or liens on the property and then use it for other purposes.
• You can refinance existing debt with a reverse mortgage.
• Homeowners have to attend a mandatory counseling session approved by the Department of Housing and Urban Development to know the details and protect themselves from scams or frauds.
• Costs of a reverse mortgage include up-front mortgage insurance premium, ongoing mortgage insurance premium, and interest and loan servicing costs.
• A homeowner has to continue to live in the property, and if they want to move, they have to settle the loan.
• You can repay the loan or the reverse mortgage when you sell or move from the property after settling the loan.
• In the event of a homeowner’s passing, repayment is left to a spouse, heirs, or the estate.

Top property reverse mortgage lenders

American Advisors Group: They offer multiple reverse mortgage types, and its loan limit is $4 million. It is one of the largest reverse mortgage companies with excellent financial standing. Their cost may be around $6000 to $8000 for a loan.

Reverse Mortgage Funding: They offer multiple reverse mortgage options with fixed and adjustable rates. Their loan limit is $4 million offered as lumpsum, monthly, line of credit, or a combination of these types.

Quontic Group: They offer long-term loans without charging monthly fees. Costs could be around $6,000 to $8,000, and closing time is between one to two months.

Liberty Reverse Mortgage: They are present throughout the country except in four states. They offer property reverse mortgages with flexible terms and competitive pricing. Initial costs could be between $5,000 and $19,000.

Longbridge Financial: This option is ideal for those who want to process their reverse mortgage online. Longbridge Financial does not charge a monthly fee. Their initial costs range between $4,000 to $8,000. They are present in 50 states and the District of Columbia.