There are three types of reverse mortgages: home equity conversion mortgage (HECM), proprietary reverse mortgage, and single-purpose reverse mortgage. In this article, we will focus on the single-purpose reverse mortgage and help you determine if it's the right choice for you.
What is a Single-Purpose Reverse Mortgage?
A single-purpose reverse mortgage is a loan that is offered by state and local government agencies and non-profit organizations. As the name suggests, this type of reverse mortgage is intended for a specific purpose, such as paying for home repairs, property taxes, or medical expenses. This means that the borrower can only use the proceeds of the loan for the specific purpose for which it was intended.
Single-purpose reverse mortgages are typically less expensive than other types of reverse mortgages because they are offered by non-profit organizations or government agencies. In addition, because they are designed for a specific purpose, the amount of money that can be borrowed is generally lower than other types of reverse mortgages.
Is a Single-Purpose Reverse Mortgage Right for You?
If you are considering a reverse mortgage, you may be wondering if a single-purpose reverse mortgage is the right choice for you. Here are some factors to consider:
Your financial situation: If you have a specific financial need, such as paying for home repairs or property taxes, a single-purpose reverse mortgage may be a good option. However, if you need more flexibility with the funds, a different type of reverse mortgage may be more suitable.
Your home equity: Single-purpose reverse mortgages are designed for those with lower home equity. If you have significant home equity, you may be eligible for a larger loan amount with a different type of reverse mortgage.
Your age: To be eligible for a single-purpose reverse mortgage, you must be at least 62 years old. If you are younger than 62, a single-purpose reverse mortgage is not an option for you.
Your credit score: Because single-purpose reverse mortgages are offered by non-profit organizations or government agencies, they may be more lenient in their credit score requirements. If you have a lower credit score, a single-purpose reverse mortgage may be easier to obtain.
Benefits of a Single-Purpose Reverse Mortgage
There are several benefits to a single-purpose reverse mortgage, including:
Lower costs: Single-purpose reverse mortgages are typically less expensive than other types of reverse mortgages because they are offered by non-profit organizations or government agencies.
Specific financial need: Single-purpose reverse mortgages are designed for a specific financial need, such as paying for home repairs or property taxes.
Flexible payment options: Single-purpose reverse mortgages may offer flexible payment options, such as monthly payments or a lump sum payment.
Drawbacks of a Single-Purpose Reverse Mortgage
There are also some drawbacks to a single-purpose reverse mortgage, including:
Limited use of funds: Single-purpose reverse mortgages can only be used for the specific purpose for which they were intended.
Lower loan amounts: Single-purpose reverse mortgages generally offer lower loan amounts than other types of reverse mortgages.
Limited availability: Single-purpose reverse mortgages are not available in all areas, and may only be offered by certain non-profit organizations or government agencies.
A single-purpose reverse mortgage can be a good option for those with a specific financial need, such as paying for home repairs or property taxes. However, if you need more flexibility with the funds, or have significant home equity, a different type of reverse mortgage may be more suitable. Be sure to weigh the benefits and drawbacks