There are a lot of reasons to look forward to retirement, but loss of income is certainly not on the list. In fact, taking a reduction in your income when you retire can be a serious problem. If you own your own home, you may have heard that a reverse mortgage can help you, but you may not quite understand how. The following information will help you get to the bottom of your revere mortgage questions and concerns.
There are a lot of reasons you might prefer a reverse mortgage instead of a traditional mortgage. The biggest is a reverse mortgage provides you with money on a monthly basis from your lender. That is, unless you select a different payment option. A traditional mortgage usually requires you to pay money back to your lender monthly. Having no immediate money to pay back helps you because you can spend your borrowed money and live comfortably with no short-term stipulations regarding repayment.
Another reason to potentially get a reverse mortgage instead of a standard home loan is a reverse mortgage actually requires you to stay in your home. A standard mortgage comes with the constant fear of eviction if you miss a payment. You cannot miss reverse mortgage payments since there is no payment schedule to stick to. Therefore, you are not at risk for eviction due to non-payment.
You most likely qualify for a reverse mortgage, as long as you are at least 62 years of age. However, making sure your home qualifies for a reverse mortgage is a little more complicated. To begin with, the home has to have enough available equity to borrow from. Many things can lower your home equity, including geographic location, home age, home condition and having an existing mortgage. A reverse mortgage calculator can help you figure out if the home qualifies. It is an online calculator tool for reverse mortgage calculation that takes into account multiple factors when determining what you can borrow. For example, it calculates the percentage of the total home value convertible to cash based on government policies.
The type of home you want to take out the reverse mortgage on is also important. You can use a reverse mortgage calculator to determine the value of the home, but the home itself has to fit certain parameters. For example, it usually has to be a single-family home or have four or fewer apartments. You must also permanently live in the home. Therefore, properties you own do not qualify if you do not live on them.
When you apply for a reverse mortgage, it is important to establish the agreement the way you want it initially. It is difficult to make changes like adding your spouse to the contract after the fact. You also cannot easily cancel a reverse mortgage. If you opt to pay it off early, there are multiple fees that may apply. Therefore, you should not enter into the loan agreement unless you are sure it is the right choice for you. A reverse mortgage is a long-term loan, so you should particularly avoid it if you intend to move out of your home at any point in the next several years.
Legally, you must complete reverse mortgage counseling before signing a reverse mortgage contract. The reason is the reverse mortgage process can be somewhat complicated. It is important to understand all aspects of the process before you find yourself obligated to follow through with it. You must typically present an HECM Counseling Certificate to your lender to show you completed a counseling course. The “HECM” stands for “home equity conversion mortgage” and is the government name for a reverse mortgage.