Retirement comes with many merits, one of which includes freedom – the freedom to travel, take on something new, spend time with the ones you love, and even start up a new venture. Most retirees with financial stability will find this period most relaxing. However, for those who don’t have multiple income streams or enough cashflow, post-retirement may be dreadful. But what do you do to prevent this situation from occurring? Here is where a reverse mortgage comes in handy? What is a reverse loan, and how does it work? You are about to find out in this comprehensive guide.
Saving the Day with a Reverse Mortgage
You may have thought to yourself, “why not give the traditional loans a try?” It sounds like a brilliant idea until you wake up one morning and discover that you are stuck with a $3000/month loan agreement and you can’t meet up. Besides, if you fail to repay your loan, then you risk losing your home. No retiree would want to go through this ordeal. As such, the standard loan doesn’t help that much in the long run. So, what makes a reverse mortgage different?
A reverse mortgage does the opposite of the regular home loan – it puts money in your pocket. So, rather than you paying for a loan you took, you get paid by your lender. Sounds great, right? However, your home equity must be enough to meet the amount you need, or else a reverse mortgage may not be the ideal choice. According to federal law, you can borrow a part of your total home equity. Your lender will determine the amount you can access using a reverse mortgage calculator.
How Can I Assess a Reverse Mortgage?
You have to be, at least, 62 years to qualify for a reverse loan. Another area your lender will consider is your home. You need to have a primary, permanent residence and must live in it. Your lender will run a mortgage application background check using a reverse mortgage calculator. This estimation tool will determine your creditworthiness and eligibility.
With a reverse mortgage, you don’t have to make repayments. Your lender pays you for your home. However, you have to pay property taxes, home insurance, and maintenance cost.
What Makes a Reverse Mortgage Unique?
Unlike a standard home loan that requires you to make regular repayments, a reverse mortgage puts in money in your pocket. As long as you reside in your home, the term agreement remains valid. Vacation apartment and rented homes don’t count. You can convert a portion of your home’s equity into cash to meet several needs. However, you can also lose the validity of a reverse mortgage if you do any of the following:
- File for bankruptcy
- Relocate from your home
- Fail to pay your property taxes, home insurance, and maintenance cost.
If you have a multi-story apartment, you can use one of them as your primary, permanent residence. Additionally, you can receive your reverse mortgage funds in any of the three ways – as a line of credit, as a lump sum, or as a monthly payment.