Types of Reverse Mortgages

FHA  Monthly Home Equity Conversion Mortgage (HECM)

Insured by the Federal Housing Administration (FHA) which is part of the U.S. Department of Housing and Urban Development.  It is the most popular reverse mortgage. The amount loaned depends on your age and the value of your home. The government puts limits on the cost of the loan. The money received from a HECM loan can be used for any purpose you choose.  You must be age 62 or over and you must use your home as your principal residence.  You can take the money as a single lump sum or as a monthly cash advance for a specific period of time (or for as long as you live in your home).  A credit line account that allows you to withdraw cash when you want and to decide how much cash you withdraw is another option. One advantage of the credit line option is that the amount of money available increases each year. The interest rate margin for the HECM floats at 1.5 % above the One-Year T-Bill Index.  

FHA Annual HECM

Same options as the HECM Monthly. You would receive a lower benefit with the Annual HECM because of the higher interest rate. Sometimes people choose the Annual HECM because of the higher interest rate caps. Annual rate cap of 2 % up or down with maximum rate increase cap of 5% over the life of the loan.  As of January 2006, the interest rate floats at 3.1% above the One-Year T-Bill Index. 

Proprietary Reverse Mortgage (Jumbo Cash Account)

Institutionally funded reverse mortgage normally used if your property is worth more than $750,000.  Higher effective interest rates than the HECM or Fannie Mae.  Usually a substantial cash advance is taken at closing.  The zero point option is most frequently used by Seniors aged 75 or older for home medical care. Interest rate rate floats at 5% above the London Interbank Offering Rate (LIBOR) Index.

The Fannie Mae Homekeeper

Conventional (non-government) reverse mortgage.  Similar to the HECM Annual Plan. It has lower closing costs than the HUD/FHA programs and slightly higher loan limits. There is no credit line growth rate as there is with the HUD/FHA options. The Homekeeper accounts for a very small number of the total reverse mortgages granted.  The interest rate floats at 3.4% above the One Month CD Index.