It is difficult to find out exactly what a reverse home loan is all about, since much of the information comes from lenders who are selling them. Make sure you get the full information before you consider this specialty type of loan.

The first question to ask is What is a Reverse Mortgage? This is a specially designed loan that allows senior citizens to borrow against the equity in their home. Basically, the amount of equity built up in a home over many years is paid out to the homeowner. The difference is that no repayment is called for until the home is no longer the primary residence-as a rule when the house is sold.

The proceeds of the home sale is used to pay down the reverse home loan. The homeowner has little debt on the home to start out with, and the debt created must be less than the sales price of the house.

This is a plan that lets older homeowners stay in their homes by taking an advance on its value. Most older people, with no job, would not qualify for a normal mortgage.

But there are some caveats to be aware of with reverse mortgages.

An added expense that exists in reverse equity mortgages is non recourse insurance, which gives the lender a guarantee in case the amount distributed under the mortgage turns out to be higher than the sale price of the house. You also still have closing costs, but they are treated as additional draws and added to the balance.

This is why it is critical to understand all of the costs involved in this type of loan. If you will only be availing yourself of the money for a few years, you may be withdrawing too much away from your home’s equity with up front costs that will not be spread out over a long time.

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There are many types of home loan to choose from nowadays. Choice is good, but this many choices can be confusing.

Understanding the kinds of choices you will have to make will make it a lot easier to get the best type of home loan for your situation.

One of the first choices a borrower will face is whether he wants an ARM or a FRM. An FRM is a fixed rate mortgage and an ARM is an adjustable rate home loan.

Even if you choose a FRM, you will have categories within the category to choose.

Likewise, there are variations on different kinds of ARMs. There are lots of kinds of ARMs in the home loan market.

Another decision facing a borrower is whether you want to choose an interest only loan, although this choice is offered less and less nowadays.

Now you need to decide on whether you want to pay points, and if so, how many? This is usually a situation that can be decided by how long you plan on living in the home.

The next decision is what kind of a down payment you want to deposit. Most people are limited by finances, but for those with ample funds, they have to decide whether investing part or using it all for a deposit is the wisest choice.

Another option you may be given is a prepayment clause. You should definitely opt for this if you feel you want to get out of the loan before the end of its term.

And a final decision is whether and when you want to lock in a rate. Locking in a rate is usually a good idea, unless the rates decrease after you have fixed your rate. If you lock in a rate and then rates fall, you may be stuck with an increased rate. You may, for a fee, though, have an option to annul the rate agreement if the rates are better at the time of closing. Those who feel rates are on the rise, or those who simply don’t want to gamble on the interest rate market will usually opt for a lock in rate.

All of these loan features will make the choice of your home loan more complicated, but it is critical to understand what features you are being offered. Don’t even think about signing for loan choices that you do not even understand.

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