Deciding to Apply for a Reverse Mortgage
You have recently retired or are about to, but you do not like the looks of your financial future. If you can relate to that statement, you are probably feeling the income reduction crunch that comes from no longer working. Therefore, you might be contemplating applying for a reverse mortgage to ease that pressure. Here are some things to know before deciding.
Reverse Mortgage Money is Freely Spent, Initially
One of the largest perks of applying for a reverse mortgage is you can initially spend the money freely without worry. That is unlike a traditional home loan, which comes with immediate and recurring mortgage bills. Instead, the reverse loan is typically only paid back when you want to pay it or when your house stops being your main residence.
The Process of Repaying a Reverse Mortgage
There are certain things that can make a reverse mortgage problematic. One is the long-term repayment process. When asking yourself “Are reverse-loans good ideas?” you need to know exactly how that process works. You can opt to pay the balance whenever you want, as long as you do not move out of the house or violate your loan agreement. However, when a violation does occur, you will be given a short space of time to make full restitution to your lender. That time period may vary, but a few months is a common time span.
What Happens if You Cannot Repay a Reverse Mortgage
A positive aspect of a reverse mortgage is it protects you from losing any of your other assets. It is attached only to the home itself. If you cannot eventually repay the loan, you have to allow the home to be sold. However, you can keep all of your personal property. The lender cannot confiscate or sell it to recoup losses.
Freedom to Get Money When You Need It
A reverse mortgage also offers you the freedom to get money when you want it. A traditional mortgage usually requires you to request a large lump sum, even if that sum is more than you need at the time. A reverse mortgage allows you to opt for monthly payments, a one-time payment, or a home equity credit line. Therefore, you have the freedom to receive exactly what you need or want in a way that makes sense based on your needs.
Reverse Mortgages Versus Home Equity Conversion Mortgages
Reverse mortgages and home equity conversion mortgages (HECMs) are almost the same. The difference is the government offers and insures HECMs. Other reverse loans are typically available through various local lenders or larger private banking institutions. The borrowing limits at all such institutions are government regulated, but only HECMs have a layer of government protection.
Reverse Mortgage Loan Period Information to Ponder
A regular home loan has a clearly established loan period. That is otherwise known as the duration of the entire loan. That period is often five years or less. A reverse mortgage encourages you to borrow money unhindered for much longer. There is no set number of years the loan is active. Instead, it is active for as long as you follow the rules established when you sign the loan agreement, such as the rule that you must keep living in the house to which the loan applies.
A Final Word About Reverse Mortgage Details
Even though a reverse mortgage could be the answer to your retirement funding problems, you need to truly understand the details. For example, be well aware of interest rates, since a long-term loan accumulates a lot of interest. If you are not certain of some details, ask a third-party expert. Do not rely solely on the information provided by your lender. A reverse mortgage counsellor can give you insights about aspects of borrowing you might not have previously considered.
