Types of Reverse Mortgages in Florida

Did you know seniors 62 and older can use a reverse mortgage to access up to 60% of their home’s value without monthly payments?

From federally insured options like HECMs to single-purpose and proprietary loans, each type serves different needs.

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This guide will help you understand these reverse mortgage options and decide which one might work best for you.

Home Equity Conversion Mortgages

Home Equity Conversion Mortgages (HECMs) are federally insured and the most common type of reverse mortgage, making them a secure option for eligible homeowners aged 62 and older.

Unlike other reverse mortgages, HECMs allow flexible use of funds for any purpose, with payout options such as monthly advances, a credit line, or a lump sum.

Key factors affecting the loan amount include the youngest borrower’s age, home value, and interest rates.

A major requirement is mandatory counseling with a HUD-approved advisor, ensuring borrowers understand terms and explore alternatives.

HECMs also involve higher upfront costs compared to traditional loans.

Borrowers must continue paying taxes, insurance, and maintenance expenses, and they must live in the home as their primary residence to avoid loan repayment triggers.

Example of HECM

A HECM is ideal for seniors 62+ with at least 50% home equity who need extra funds for retirement while staying in their home.

For example, a 62-year-old with a $100,000 mortgage-free home might qualify for $40,000. If they have a $25,000 mortgage balance, they can pay it off and keep $15,000 for other expenses, eliminating monthly mortgage payments and freeing up $400-$500 in their budget.

The loan grows with interest over time.

After 10 years at 5% interest, the $40,000 loan would grow to $65,880. If the home appreciates to $120,000, the estate repays the loan, leaving $54,120. If the home value stays lower, such as $75,000, the loan is repaid, and nothing remains for the estate.

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HECMs for Purchase

HECMs for Purchase are designed for seniors 62 and older who want to buy a new home while eliminating monthly mortgage payments.

This option is ideal for those looking to downsize, relocate closer to family, or move to a home that better fits their physical needs.

By combining the home purchase and reverse mortgage into one transaction, HECMs for Purchase reduce closing costs compared to handling these steps separately.

Borrowers only need to make a significant down payment (typically 40-55% of the home's value), with the reverse mortgage covering the rest.

Unlike traditional reverse mortgages, HECMs for Purchase focus specifically on acquiring a new home, giving retirees the financial freedom to make a move without the burden of monthly payments.

However, borrowers must still pay property taxes, insurance, and maintenance costs, and the loan balance grows with interest until the home is sold or the estate repays the debt.

Example of HECM for Purchase

A couple, both 62, sells their $100,000 home and buys a new $100,000 home near their children. They put down 50% ($50,000) and use a reverse mortgage for the other $50,000.

No monthly payments are required, but the loan grows with 5% interest. After 10 years, the loan balance is $75,000.

• If the home is worth $125,000: They sell it, repay $75,000, and keep $50,000.
• If the home is worth $75,000: They sell it, repay the loan, and keep nothing.

This option lets them relocate without taking on monthly payments in retirement.

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Proprietary Reverse Mortgages

Proprietary reverse mortgages are private loans that are not insured by the government, unlike HECMs. They are a good option for people with high-value homes because they often allow for larger loan amounts.

These loans don’t have the same value limits as HECMs, which are capped. Since they are not regulated by HUD, counseling is not required, but some lenders may still recommend it.

Proprietary reverse mortgages only offer lump-sum payments, unlike HECMs, which provide more flexible payment options. They are often used by homeowners with properties that are too valuable to qualify for HECMs.

Proprietary Reverse mortgages are commonly used for homes that exceed the appraised-value cap imposed on HECMs.

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Single-Purpose Reverse Mortgage

Single-purpose reverse mortgages are the most affordable type of reverse mortgage because the money can only be used for one specific purpose.

These loans are usually offered by state or local governments or nonprofit groups.

The funds can cover things like fixing a roof, plumbing repairs, paying property taxes, or other big expenses, with amounts typically ranging from a few thousand to tens of thousands of dollars.

They are made for homeowners with low to moderate incomes and might not be available everywhere.

This option is especially helpful for people who don’t qualify for other reverse mortgages, giving them a simple way to meet specific financial needs.

Verify Your Reverse Mortgage Eligibility

Bottom Line

Reverse mortgages let you use your home equity to access funds for different needs.

HECMs offer government-backed protections, proprietary reverse mortgages are ideal for high-value homes, and single-purpose reverse mortgages are a budget-friendly option for specific expenses.

It's important to review your financial situation, explore all options, and get advice from experts at MakeFloridaYourHome before deciding on a reverse mortgage.