Reverse mortgages are home loans for retirees. They are not the same as traditional home loans at all. First of all, you can only qualify for one if you are 62 or older, but there are also other differences you need to be aware of. For example, one reason reverse mortgages are so popular is they can help you to pay for things you need during retirement without adding to your financial stress. Read on to find out how.
Why Reverse Mortgages Relieve Financial Stress
Reverse mortgages can relieve financial stress for you during retirement, rather than adding to your stress. That is because they are loans with long-term repayment terms. The money you borrow does not need to be paid back right away. In fact, you can use a reverse mortgage to pay off a traditional mortgage and get rid of your monthly mortgage payment. However, if you plan to do that, you must pay the original loan off immediately before using remaining reverse loan funds for other purposes.
A Reverse Mortgage Can Give You an Ongoing Supplemental Income
When you apply for a reverse loan and that application is accepted, you will receive access to the equity in your home as readily available cash you can spend. You can opt to receive that cash from your reverse mortgage lender in installments, which will give you an ongoing supplemental income. That can help you to pay predictable ongoing bills or have more money each month available for fun activities during retirement.
Calculating Your Available Reverse Mortgage Amount
Determining how much money you can borrow through a reverse mortgage is important. That amount will be based on the current value of your home. However, a reverse mortgage calculator tool must be used to determine how much you can borrow against that value. Due to laws that are in place, you cannot borrow the full amount. Also, the mortgage calculator takes into account other factors necessary to determine the worth of your home and what you can borrow.
You must also factor certain expenses into the amount you can borrow. For example, you cannot maintain a traditional loan and a reverse loan at the same time. Therefore, money will be taken off the top to pay off an existing loan, if you have one. You will also have fees and closing costs taken out of the amount you can borrow before any money enters your hands. Additionally, you must keep in mind your interest fees will be high when the loan does finally come due, which will be whenever you stop living in the home.
Keeping Your Home While Having a Reverse Mortgage
Keeping your home is actually a requirement when you have a reverse mortgage. Therefore, there is no danger of eviction. A reverse mortgage does not have a set period in which it has to be paid off like a traditional loan. Instead, as long as you live in the home, the full balance of the reverse loan will not be due. However, you must be able to afford the costs of retaining home ownership to qualify for the reverse loan in the first place. For example, your reverse mortgage lender will expect you to have the means to pay your home owners insurance and property taxes.