January 23

Have You Thought About a Reverse Mortgage?


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Important Reverse Mortgage Considerations

If you have already been warned about how financially stressful retirement can be, you may be searching for a solution for yourself or aging parents. You may have already vetoed certain ideas, such as requesting a standard home loan. After all, taking out a loan on your home will only give you another bill to pay, right? Well, that is true of a standard loan, but the same cannot be said for a reverse mortgage. If you are at least 62 years old, you may qualify for a reverse loan that actually pays you. Here are some important reverse mortgage considerations to ponder before you apply.

Why You Might Need a Reverse Mortgage
The reason you might need a reverse mortgage is obtaining one can allow you to access your home equity as cash without immediate consequences. A reverse mortgage lender does not require you to pay any part of the loan back right away and does not send scheduled bills. Instead, you pay back what you can on a long-term basis. The loan agreement remains in effect for as long as you continue to use the property as your primary home. That means you can spend your loan money to make your retirement more comfortable or enjoyable without immediate financial repercussions.

Where You Can Get a Reverse Mortgage
There are reverse mortgage lenders everywhere. However, not all of them are legitimate sources. Some reverse mortgage scams do exist. The best places to obtain a reverse loan are from a trusted private lending company, such as your bank or from a government source, such as the FHA or HUD. A government reverse mortgage is known as a home equity conversion mortgage (HECM), but other than it's name it is not much different from a private loan. The only major difference is an HECM is insured by the government.

Borrowing Money with a Reverse Mortgage
To borrow money with a reverse mortgage, you must first determine how much you are allowed to borrow. The way to do that is with a tool called a reverse mortgage calculator. The tool takes several variables into account to determine how much of the equity your home has can be borrowed. There are government caps in place to prevent the lender from allowing you to access too much of the equity or use all of it.

Once you use the reverse mortgage calculator to determine how much you can borrow, you must decide how you want to borrow it. The standard option is to receive installment payments from your lender on a monthly basis for a set period of time. Doing so provides a predictable and ongoing income boost. However, you can also opt to receive a large one-time payment or draw exact amounts from your available funds when you need them with a home equity line of credit. The choice is yours.

What You Need to do to Qualify for a Reverse Mortgage
You must be a homeowner and be at least 62 years of age to obtain a reverse mortgage. It is also necessary to pass a credit check. The credit check is required because your lender has to make sure you are a good risk. You will keep ownership of the home while the loan is in place. Therefore, you will be responsible for paying property taxes and other expenses. If you file for bankruptcy or fail to meet those financial obligations, you may lose your home, and your lender may lose the money you borrow.


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