Professional Mortgage Solutions in Rego Park, NY is here to help break down the difference between traditional mortgages and reverse mortgages in this week’s blog post. If you are an older homeowner, and you are considering lending against your current home to purchase another property, then this week’s blog is just for you. This topic may help you answer the question of whether to use a traditional or a reverse mortgage to purchase your next property or to pay off debt. The first type of mortgage would be a new mortgage, and the latter would be a mortgaged financed from the value of an existing home that you own. The majority of reverse mortgages are made under the Home Equity Conversion Mortgage program (HECM)—there is a catch: you must be 62 years or older to quality. Read below for more information!
Reverse mortgages are a financial product that allow homeowners to use the equity in their homes to receive cash. As long as the homeowner occupies the home, payments do not need to be made on a reverse mortgage. The loan only needs to be repaid with the homeowner no longer occupies the residence. With a traditional home equity loan, once you receive the cash, you begin repaying the loan. Homeowners can choose to receive monthly cash payments, a single lump sum payment, or a combination of the two. The cash from a reverse mortgage is often used for unexpected medical expenses, to pay off debts, and general supplemental income for every day expenses. HECMs make up the majority of reverse mortgages. They are backed by the Federal Housing Administration just like traditional FHA loans. You can even use a reverse mortgage to purchase a new home. This is often a valuable option for older homeowners who need a more accessible home or who want to move closer to family.
Traditional mortgages are the standard home loans used to purchase or refinance a home. With a traditional mortgage, once you close and purchase your home, you will begin making payments on the loan for a set period of time. Loan terms are usually 10, 15, or 30 years, with 30-year fixed-rate mortgages being the most common. There are various government-backed options such as FHA loans, USDA loans, and VA loans. These loans are limited to certain amounts and are insured by government agencies to protect lenders. This insurance also tends to make it easier for borrowers to qualify for a mortgage. There are also conventional loan options which are simply any home loans not backed by the government. Jumbo loans are a common type of conventional loan. A jumbo loan is a conventional loan that exceeds the limits placed on government-backed options. Like the reverse mortgage, you can also use a traditional refinance to obtain cash for various expenses. If you have equity in your home, cash-out refinances will allow you to replace your existing mortgage with one of a higher amount. You will receive the difference between the two in cash.
Deciding the Next Step
There will be limits to how much you can get from a reverse mortgage. The amount will depend on your age, home value, as well as lending amount ceilings. If you desire to increase your assets or to pay off debt—there are many options to consider. You may be able to take out other forms of credit from your home equity, or, you could consider a second traditional mortgage. Professional Mortgage Solutions in Rego Park, NY is here to help coach you through the process. Contact us today for more information.