If you are sixty-two years old or older, looking for funds for home improvement, pay off your current mortgage, supplement your retirement income or for healthcare purposes, you might put into consideration a reverse mortgage. This mortgage allows you to convert part of your home equity into cash without having to pay additional monthly bills or sell your property.

     There are three kinds of reverse mortgages. First are the Single-purpose Reverse Mortgage and the least expensive. This is used for a single purpose only as specified by a non-profit lender or the government. Most homeowners with low or moderate incomes may qualify for this. Second and third, is the Home Equity Conversion Mortgages or HECMs and backed the U.S. Department of Housing and Urban Development and the Proprietary Reverse Mortgage financed by its developers.

     Both Proprietary Reverse Mortgages and HECMs are more expensive than most conventional home and loans and their up-front costs are high. You might want to consider these kinds if you are planning to stay in your property for a short time or else borrow a small amount of money. These loans need no income or medical requirements, are widely available and for multi-purpose use.

     Consult a counsellor from a government-approved housing counselling agency before you apply for HECM mortgage. Some lenders that offer proprietary reverse mortgage may require you for counselling. He or she should be able to explain the expenses, financial implications and alternatives of the HECM and help you compare the costs of these two types of mortgages. The amount that you loan from a HECM or proprietary mortgage will depend on factors such as the type of mortgage, value of your home, your age and the present rates of interest. In general, the older you are the more equity you can have in your home and the lesser amount that you owe means the more money you get.

If you are interested of a reverse mortgage, here is what you should know:

1. Generally, for HECMs, lenders will charge a mortgage insurance premium, origination fee and other costs of closing. Some may charge you service fees for the duration of the mortgage. Currently, the law dictates the origination fees for HECM.

2. Although some reverse mortgages have fixed rates, most have variable rates that are tied to a financial index and are likely to alter with the market conditions.

3. The amount owed in a reverse mortgage increase over time. The interest is charged on the outstanding balance, added to your monthly fees. This means that the total debt will decrease as the funds are advanced into the loan interest.

3. A reverse mortgage could use up some or all of the equity of your home and leave a few assets for your heirs. Most of the mortgages have nonrecourse clause that prevents you from owning more than its value.

4. Since you will retain the title to your property, you are responsible for the property taxes, insurance, utilities and other costs. If you fail to pay these and maintain your home condition, the loan may become due and payable.

5. If your home is of higher value, you could get a higher amount, but this could mean higher expenses. It is best to do a side-by-side comparison of the benefits and expenses of these two kinds of mortgages.

6. You can cancel your deal within three days without paying a penalty. You have to write a letter to the lender and send through registered mail and request for a return receipt that will allow you to document the letter and the date received by the lender. It will take twenty days for the lender to return any money you paid for financing.

     Remember that regardless of the kind of reverse mortgage you are planning, you should understand the conditions that could make your loan due and payable.

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