The Origin and Expansion of Reverse Mortgage Options

*This is a collaborative post 

You have probably heard that retiring is financially difficult for some. If you have concerns about that, you’ll be glad to know a reverse mortgage could help. The retiree-only loan lets you borrow money on a more long-term basis than a standard home mortgage. Today, you have a lot of available reverse mortgage options, but that was not always the case. Here is what you should know about how they started and how they have expanded over time.

The Year of the Reverse Mortgage

The year of the reverse mortgage was 1961. That was the year when a woman living in Maine rushed to a local lender seeking assistance. Suddenly without the income, her household used to have, she was in danger of losing her home. Her pleas for assistance could have fallen on deaf ears, but they did not. The lender wanted to help her and, as a result, developed a lending plan that later became a reverse mortgage.

The Government Got Involved in Reverse Mortgages

That first “alternative” form of a mortgage soon sparked a boom in similar mortgages issued in the U.S. As word spread, government officials soon decided they needed to take a closer look at this new mortgage type. As a direct result of government intervention, nationwide reverse mortgage standards were set, such as the 62 years of age or older requirement for applying homeowners that exists today.

There Are Now Two Types of Reverse Mortgages

Another way in which the government eventually got involved was by creating their own versions of reverse mortgages. Government reverse mortgages are issued by organizations such as the Department of Housing and Urban Development (HUD). They are referred to as home equity conversion mortgages. You may be wondering how does a reverse mortgage work when it is issued by the government. Abbreviated “HECM,” such a mortgage offers the assurance of federal insurance for applicants. Otherwise, it is almost identical to privately-issued reverse mortgage contracts.

Reverse Mortgages Are Now Safer for Borrowers and Lenders

The Government has also stepped in since 1961 in other ways. For example, there are now laws in place governing all reverse mortgages issued by private and government lenders. The biggest regulations relate to how much of a specific home’s equity can be borrowed. Those protections help lenders avoid making poor risks and also help to safeguard applicants.

Reverse Mortgage Risks do Still Exist

Even with the evolution of reverse mortgages, risks do still exist. One risk is obtaining a mortgage from a seemingly legitimate lender only to be scammed. To avoid such a problem, seek a reverse mortgage from a trusted lender. That could be a government agency or a local banking institution you have done business with before. It could also be a bank of a nationally-recognized bank.

Reverse Mortgage Borrowing Basics to Know

Thanks to the evolution of reverse mortgage, there are now some universal features of reverse mortgages you should know. For example, the borrowing basics are the same, no matter what institution you borrow from. You will agree upon a total amount available to be loaned to you. Then that amount can be doled out to you by whatever means you choose, such as one payment or ongoing instalments.

Once you borrow the money, how you pay it back is also similar, regardless of institution. You do not follow a schedule. You simply pay what you owe in your own good time. You only have to pay the complete balance owed if the home ceases being your main residence or if the rules of the agreement are violated in another way.

Tips for Choosing Between Mortgage Types

Now that you know how reverse mortgages started and how they have evolved, you can see their potential benefits. But they do also have possible downsides. Weighing the good and the bad is important before you decide if you should apply for one or not. Compare mortgage types carefully and seek expert advice from uninvolved sources. Do not trust the lender blindly.