When you retire you may have difficulty paying for medical bills, regular utilities or other expenses. Taking out a home loan might help you for a little while, but having to repay part of it monthly will add more financial stress. A reverse mortgage is a better option. It is a type of home loan that does not require immediate repayment. All reverse mortgages are somewhat regulated at the federal level, but some, called home equity conversion mortgages (HECMs), are offered by government-run organizations. Others are offered by private lending companies. They all have the following things in common.
Calculating How Much You Can Borrow with a Reverse Mortgage
Determining how much money you can borrow with a reverse mortgage depends on several factors. First, the current home market must be analyzed as it relates to your home’s age, size and condition. Second, you must understand that if you have an existing home loan the amount owed on it must be paid immediately out of your reverse mortgage funds. Third, you must be aware that there are federal regulations stating that you can only borrow a percentage of the total available cash value of the home.
The best way to determine how much you can borrow based on the above factors is to use a reverse mortgage calculator tool to see what you can borrow. Such tools are available online or through most reverse loan lending facilities. Of course, the final amount you can borrow will be clearly outlined by your lender when you sign the loan contract.
Benefits of Reverse Mortgages to Consider Before Applying
There are a couple of important benefits of reverse mortgages you should familiarize yourself with before you fill out an application. The biggest is that you will not have to pay portions of the loan back right away. In fact, the full loan balance will not be due as long as you remain living in the house. You will also keep ownership rights and not risk being evicted as you might if you missed a payment on a traditional home loan.
Another major benefit of reverse mortgages is the freedom you will have regarding the money you receive. You can choose both how you receive it and how you use it once it is in your possession. For example, you can choose a lump sum to pay off a medical bill or monthly installments to cover utility bills. A third option is you can set up a line of credit and borrow amounts of money against your home value only when you need it for unexpected retirement expenses.
How to Get a Reverse Mortgage
To get a reverse mortgage you must be at least 62 years of age. If you are co-applying with a loved one he or she must also meet that age requirement. For example, you cannot apply with your spouse if he or she is only 60. However, you can apply as an individual. You must also have good credit to apply for a reverse mortgage and be able to prove you live at the residence mentioned in the mortgage application. It cannot be a relative or friend’s home or a vacation home. You must also pay off any existing home loan you have immediately using your initial received reverse mortgage funds.
Paying a Reverse Mortgage Lender Back
Paying a reverse mortgage lender back is easy because the lender will not require full repayment as long as you stay in the home. You will have the freedom to enjoy your retirement without that burden. However, if you stop living in the home the balance must be paid or the home can be sold. In the event of a sale scenario, the lender will keep an amount up to what you owe. If a remainder exists it will go to you or your heirs. If a loan balance still exists after the sale anything extra you owe will be erased by the lender.