Everything You Need to Know About Reverse Mortgages

  *This is a guest post Whether your retirement is imminent, or you still have some years to go, many people find themselves in the position...


*This is a guest post

Whether your retirement is imminent, or you still have some years to go, many people find themselves in the position of wondering how they will navigate this next phase of their lives once it rolls around. This is particularly true on the financial side of things. Although it is perfectly possible to be happy without a huge amount of money, having none is, of course, a big problem. How do you avoid living from hand to mouth in what should be your golden years? Let’s hear it for the powerful and flexible post-retirement tool, the reverse mortgage. Keep reading for more than you knew before about what it is, how it works, and how it can help you during retirement. 

Use your home to your advantage

A home is an investment, and to be clear, that means that it increases in value and usefulness the longer you own it. The home loan that you might have used to get you to that point, however, you will no doubt recognize as a stressful money-guzzler. From the strict repayment schedules to the constant fears around defaulting, the traditional home loan is a fearsome beast. So why would you want to mortgage again, during a time of your life that should be lower in stress than before? A reverse mortgage is different and will let you use the value of your home in the form of cash, when you need it most.

The payment terms are far more flexible too – there is no need to repay according to any strict schedules, and not any time soon after taking it out. In fact, if you adhere to the loan conditions that keep your application valid, you are under no pressure to make any repayments until the loan term comes to an end. This useful aspect makes it very difficult to default on payments, and the risk of foreclosure is virtually zero.

What kinds of Reverse Mortgages are there?

There are two kinds of reverse home loans, with the main difference being whether it is issued by a private lender or a government agency. In the case of it being a government-issued loan, it becomes known as a Home Equity Conversion Mortgage (HECM). The main difference is that these are backed and insured by government, whereas a private lender’s offering is not. The main guidelines for an HECM are that you can’t borrow more money than the value of your home; that you will still receive your loan even if the business shuts down, and that you may assign titleholders who can benefit your loan within certain contexts.

How do I apply?

Because a reverse home loan is designed to benefit those of retirement age in particular, the minimum application age is 62. You need to be permanently resident in your home and be its legal owner. Your lender will make use of a tool called a reverse mortgage calculator to determine your eligibility for the loan. Factors that will be considered in the application are the age, location and condition of the house, as well as your credit record and creditworthiness.

Once the loan has been granted, you can receive the funds in one of three ways: as a regular monthly payment, as a line of credit (where you access the money in the amounts you need when you need it), or as a bulk payment in the form of a lump sum. Remember that federal laws only allow you to borrow a percentage of the house’s overall value, so make sure you don’t expect the full amount in your loan!

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