Financial difficulties during retirement are fairly common. However, you may be able to avoid them by using your home to acquire more spending money. If you are at least 62 years of age, you can do so by applying for a reverse mortgage, but is it really better than a regular home loan? To answer that question, you have to investigate how such a loan is able to provide retirement assistance.
A Reverse Mortgage is Not Paid Back for a Long Time
As you may know, taking out a regular mortgage on your home usually involves borrowing a lot of money at once and paying it back slowly over time. You have to pay it back in set, scheduled amounts each month beginning almost immediately. Therefore, you do not really have time to utilize the money the way you want without worry. In fact, you actually add another bill you have to pay each month. Therefore, you receive some financial assistance, but not as much as you would like and with added stress.
A reverse loan is different because you do not have to pay any of it back immediately. Your reverse mortgage lender also will not require you to repay portions of what you borrow each month. Instead, the lender will use a reverse mortgage calculator to determine the amount you are able to borrow. The tool does that based on maximum percentages established by the federal government and the condition and age of your home, as well as other factors. Then you can borrow the money without any restrictions on when you have to pay it back except the balance will be due if you ever stop living in the home.
Requesting Reverse Mortgage Funds Your Way
A major benefit of a reverse mortgage is you can request the funds the way you want. After a reverse-mortgage calculator is used to figure out the total funds available, you choose how to receive those funds. A common way is through monthly installment payments. Setting up a monthly amount you will receive gives you the knowledge and financial stability to cover regular bills during retirement. However, you can also ask your reverse mortgage lender to give you a larger payment, if you have a major expense to pay for, such as a medical expense. You may also find it beneficial to borrow on an
as needed basis using a line of credit attached to your home equity. The decision is up to you.
Qualifications to Get a Reverse Mortgage
To get a reverse mortgage, you have to apply for a loan on your primary place of residence and you have to own that residence. The home also has to be valuable enough to have a reasonable amount of equity for you to borrow. Anyone signing the loan agreement with you, such as your spouse, must also live in the home. Additionally, you and any other loan signer have to be at least 62 years old.
Rules for Repaying a Reverse Mortgage
In the past, a reverse mortgage was exclusively a long-term loan. It was not designed to be paid back early. However, since laws passed in 2012 were enacted, it is possible to pay back a reverse loan early. Nevertheless, it is not recommended because you can incur many administrative fees for doing so. Instead, it is better to use the mortgage for its intended purposes, which is to let you pay your retirement expenses unhindered until you leave your home. Then you can pay back any balance owed or the home can be sold to cover some or all of the balance and allow the lender to at least partially recover the funds lost.