If you wish to know the basics of a reverse mortgage you will learn that this mortgage can be of three distinct types. The most common type is a home equity conversion mortgage (HECM) which stands for the loans offered by lenders on home values that are lower than $765,000. This mortgage is also readily available.

You must understand the basics of a reverse mortgage to know how you can get your payments. It is possible to get all the proceeds at one time through a lump sum amount. This will be given when the loan closes. This is also the only option with fixed interest rates; the other options come with variable and adjustable interest rates.

Basics of a Reverse Mortgage – Different Types Of Payment Options

• Equal Monthly Payments
  In this type, the lender has to provide regular steady payments to borrowers for as long as they live.
• Term Payments
  Here, the lender will provide an equal amount of payments every month for a definite time period, like 10 years which the borrower chooses.
• Line of Credit
  In this type, the homeowner is free to borrow an amount as he deems fit when there is a need for money. He will pay interest on the amount borrowed from his credit line.
• Equal Payment and Line of Credit
  Here, the lender will give steady monthly payments during the period that at least one of the borrowers stays in the house and uses it as his main residence. In case the borrower needs more money, he can then access this line of credit.
• Term Payments and Line of Credit
  In this, the borrower gets equal payments from the lender each month for a definite time period, like 10 years. But if he/she needs more money after that period or during that period, he/she has access to line of credit.

Rather than staying in the house, the homeowner has lived in for years, he is free to use the amount from a reverse mortgage to buy a new house. The biggest advantage of using the HECM for buying a new home is that you can buy it outright, making good use of the money you obtained through the sales proceeds of your old house, gift money, private gifts, and other income sources. With this home buying, you are not left with any mortgage payments every month.

Why is Reverse Mortgage Preferred?
Most borrowers choose to make steady monthly payments in a reverse mortgage. It is helpful to start repaying the debt earlier. Normally, interest will start to grow when you begin receiving money. This amount again depends on the kind of payment you have chosen to get. To prevent a lot of interest from building up, you should decide to pay the interests over time. The interest payments will be lower than your existing monthly mortgage payment. It is best to take advice from a financial advisor to see whether a reverse mortgage is right for you. When you are facing problems refinancing the mortgage you have currently, a reverse mortgage is a good option because it will not demand a strict credit-score criterion. But, at the same time, as a borrower, you must Financial Assessment to see if there are any extra criteria. A reverse mortgage appears to be a safer option when you cannot refinance your existing mortgage because monthly payments are not needed in it. It suits borrowers who do not have a steady income and may be forced to skip payments every now and then. Reverse mortgage lets you pay when you can afford to.

In this article, we have covered the basics of a reverse mortgage and how it’s favorable. Be sure to do thorough research before you go ahead with this scheme.