The types of reverse mortgages are really based on their different payment options. All of the following are allowed under the FHA home equity conversion mortgage where reverse mortgages with lines of credit are not permitted. The qualification requirements for both the buyer and the property are the same for all payment options.
• Tenure. Equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence. The age of the borrower (life expectancy) and equity in the property determine how much can be borrowed. The borrower receives payments until death, as long as the ownership and occupancy requirements are satisfied.
• Term. Equal monthly payments for a fixed period of months selected. The age of the borrower and equity in the property determine the amount that can be borrowed. The borrower then decides on the amount of the payments. The higher the amount, the shorter the time over which he or she is paid. Once all payments are made, the borrower does not receive any more money, but there is no repayment required as long as the borrower continues to live in the home.
• Line of Credit. Unscheduled payments or installments, at times and in the amount of the borrower’s choosing, until the line of credit is exhausted. A reverse mortgage line of credit is the same as an equity line of credit, in that the borrower uses the credit without restriction until the limit is reached.
• Modified Tenure. A combination of line of credit with monthly payments for as long as the borrower remains in the home. An example is probably the easiest explanation. The borrower qualifies for a loan of $100,000. Based on age, the monthly payment for life is $500. However, the borrower would like to be able to have a chunk of immediate cash available. The borrower opts for a line of credit for $50,000 and takes the balance ($50,000) in payments of $250 monthly.
• Modified Term. A combination of line of credit with monthly payments for a fixed period of months selected by the borrower. This works just like modified tenure except that the amount remaining after deducting the line of credit is paid over an agreed-upon time period, rather than over the borrower’s lifetime. The type of loan can be changed if the borrower’s circumstances change. Unlike the expense of a refinance, the cost of restructuring the way the borrower receives the money is currently $20.