When you start looking for a forward mortgage online, you probably see them compared to reverse mortgages a lot. Forward mortgages are mainly for buying homes or refinancing, while reverse mortgages are for older homeowners to use their home equity without moving. 

That’s not all! In today’s article, I’ll highlight the main differences, and share a real-life example to help you understand better.

Key Takeaways

  • 60% of reverse mortgage borrowers use some of the money to pay off the forward mortgage, freeing up their finances.

  • The federal government closely monitors reverse mortgages to protect older adults from unfair lending practices.

  • Before getting a reverse mortgage, you need to attend a counseling session to understand how it works.

  • With forward mortgages, if you sell the property or transfer ownership, you have to pay back the entire loan.

Understanding Reverse and Forward Mortgages

Before getting straight to the comparison, let’s take a few seconds to understand the basics!

A forward mortgage is another term used for a traditional mortgage and is what most people are familiar with. You borrow a sum of money from a lender to purchase a home, and over time, you repay that loan with interest through monthly payments.

On the flip side, a reverse mortgage is available for homeowners aged 62 and older. Unlike a forward mortgage, where you make payments to the lender, with a reverse mortgage, the lender pays you. To find the best reverse mortgage for your needs, consider reviewing quotes from various lenders.

Homeowners can choose how they receive funds - either as a lump sum, a line of credit, or in regular installments.

Forward Mortgage Vs Reverse Mortgage: How Are They Different?

Now, let’s compare the main differences between a forward mortgage and a reverse mortgage.

Forward Mortgage Reverse Mortgage

  • Forward mortgages are commonly used when buying a home. You typically pay 10% to 20% of the home's value.

  • To qualify, you must meet certain requirements, like having a stable income and a good credit history.

  • Failure to repay the loan on time and missing payment of taxes, insurance, etc. can result in foreclosure.

  • Equity goes up as you pay down your mortgage balance.

  • Repayment begins immediately after obtaining the loan and continues until the full amount is paid off.

  • While owning a home may offer tax benefits, it doesn't provide monthly income. 

  • In a reverse mortgage, you borrow money against your home's equity without needing a downpayment for quick cash.

  • To be eligible for a reverse mortgage, the borrower must be over 62 years old.

  • Failure to pay homeowner’s insurance and taxes may cause foreclosure and the loan amount must be repaid. 

  • As the debt increases with the monthly payments you receive, equity decreases.

  • Repayment starts when the homeowner sells the home, moves out, or passes away.

  • A reverse mortgage can provide retirees with extra income without selling their home.
forward-vs-reverse-trends-whats-happening

Choosing Your Mortgage: Finding the Right Fit

A reverse mortgage is a smart choice if -

  • You're a retiree looking to supplement your retirement income.

  • You need funds for monthly expenses, medical bills, or special milestones.

  • You can afford property taxes, home insurance, and home upkeep.

  • You're willing to undergo HUD-approved housing counseling.

  • You want to access your home equity without monthly mortgage payments.

A forward mortgage is a smart choice if -

  • You're under 62 and want to increase your home's equity.

  • You're looking to refinance for a lower payment.

  • You want to eliminate mortgage insurance.

  • You prefer a wider range of mortgage options, including conventional, FHA, USDA, and VA loans.

  • You want to own a home and reach your financial goals through traditional mortgage financing.

Check your reverse mortgage eligibility right here!

Find out if you qualify
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Forward Mortgage Vs Reverse Mortgage: Real-Life Scenarios

To help you better grasp how these options fit your needs, let's quickly look at real-life situations.

For a Reverse Mortgage For a Forward Mortgage

After retiring, Kelly finds herself with limited income to cover her expenses. She decides to explore a reverse mortgage option to ease her financial burden. 

With the funds she receives, Kelly is able to pay off medical bills, cover her monthly living expenses, and even fulfill her lifelong dream of taking a cruise with her family. 

Jeffrey and Teresa, a young couple, have been diligently saving to buy their first home. When they find the perfect house, they carefully review their finances to see how much they can comfortably pay upfront.

Working closely with their mortgage lender, they submit their application and anxiously await approval. Finally, the good news arrives, their forward mortgage application is approved! 

Wrap-Up: What's Your Decision?

So, now that we've gone through all the details, do you have a better idea of which mortgage is right for you? If you still have questions or need more info, just reach out to a loan officer nearby. They're there to help you make smart choices about your mortgage.

And if you're all set and ready to decide, why not get in touch with us today? We're here to support you in getting the funds you need. Just remember, whatever you choose, make sure it fits with your long-term plans and gives you peace of mind for the future

Verify your eligibility for a forward mortgage

About the writer

Micah_Greenberg

Mark Pace
Reverse Mortgage Expert

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