There are all sorts of fun things you can do when you retire. However, you still have bills to pay. If that has become difficult for you, using money already on hand can help. For example, your house has value, called equity. Converting some of that equity to cash with a reverse mortgage lets you spend it. Here are some need-to-know facts about reverse mortgages to help you apply without confusion.
A Reverse Mortgage is a Mortgage for Retirees
You cannot get a reverse mortgage unless you are a retiree, or at least of the legal retirement age. It is designed solely to help retirees by providing financial comfort. The mortgage was originally developed in the U.S. state of Maine in the 1960s. Unlike a traditional home loan, it can last a long time, giving you more time to pay off the debt.
The Reverse Loan Lets You Borrow Without Immediate Worry
The purpose of the reverse mortgage is to let you borrow funds without worrying about paying them back right away. You can extend the loan period for as long as you keep living in your house. That is, as long as no other loan agreement violations occur. Since a traditional loan has a concrete loan period often no longer than five years, it requires constant partial repayment. A reverse mortgage can be paid on your own timetable with no scheduled mortgage bills.
Reverse Mortgages Interest Rates Information to Know
It is important to know reverse mortgages do have some downsides. For example, you are obligated to live in the home in question. You can take vacations, but you cannot move away while the agreement is active. That is unless you are willing to pay all of what you owe or allow the home’s sale. Also, evaluating reverse-loans rates is essential. Since the loan will last a long time, interest will accumulate more than with a traditional loan. Getting the best rates possible is essential.
A Reverse Mortgage Does Not Provide Free Money
Reverse mortgages have a reputation for providing “free and clear” money. That is not exactly true. When you borrow money with one, you do receive money with no mortgage repayments to make right away. However, eventually, the balance and interest are owed. There is a penalty for not paying that balance, which is that the home is sold. The lender keeps the funds from the sale equaling the amount you owe.
There Are Some Initial Rules When Borrowing Reverse Loan Funds
The funds your home loan allows you to borrow may not be exactly as expected due to the initial rules in place relating to reverse mortgages. For example, federal policies prevent you from borrowing your full home value. Additionally, closing costs and other fees are removed from what you can borrow. A third stipulation is funds you owe on an existing home mortgage must be paid using reverse loan funds before the remainder of the funds are released for you to spend.
Reverse Mortgage Funds Can Temporarily Simulate Paychecks
Although you can request a single reverse mortgage payment or a credit line, monthly installment is a very popular option. Selecting that option allows you to receive a predictable amount each month, just like a paycheck. However, the amount you receive has nothing to do with what you earned while working. Also, you need to keep in mind those checks will eventually stop coming when funds are depleted.
Is a Reverse Mortgage the Right Decision for You?
Only you can decide if a reverse mortgage is best for you. To make that decision, consider your current living situation. Is your home valuable enough to be worth borrowing against? Do you plan to stay in the home for many years? Answering such questions can help you decide, as can talking to a counselor specializing in such mortgages.