Reverse mortgages are home loans specifically available to you when you are 62 years of age or older. Although you have probably seen advertisements telling you how beneficial they are to retirees, you may not understand the intricacies of how they work. You may also be unsure of exactly what benefits you can get from them. That is why it is important to explore the finer points of reverse mortgages and what they have to offer.
How to Qualify for a Reverse Mortgage
Qualifying for a reverse mortgage is fairly easy, as long as you meet the age requirement and own a home with a high enough amount of equity to borrow against. Your reverse mortgage lender may also require you to undergo a credit check and make sure you have enough financial stability to perform maintenance on your home and pay the taxes and other expenses you must pay as a homeowner. For the most part, the only disqualified homes are homes that are not your primary residence, are not worth enough or are large apartment complexes, but there may be some exceptions.
Types of Reverse Mortgages to Pick From
There are two types of reverse mortgages. For example, you can get such a loan from a private reverse mortgage lender. You can also get one from a government source. Government agencies market reverse mortgages as “home equity conversion mortgages,” or “HECMs.” That is because the loans allow you to spend part of your home equity to make your retirement financially easier.
Both types of mortgages are established in similar ways. For example, a reverse mortgage calculator is used for either type to figure out how much can be borrowed. It is difficult to calculate that amount because of government regulations and the influences of market values, as well as other factors. In addition to both taking advantage of reverse mortgage calculators, both loans are long-term mortgages with no immediate payback requirements on your part. However, they do differ in the fact HECMs are more closely government monitored and insured. Nevertheless, even private reverse mortgages are subject to some government regulations.
The Terms of Reverse Mortgage Agreements
The exact terms of reverse mortgage agreements may vary, but in general your agreement will allow you to receive an amount of money equal to a percentage of your home equity. You will then be given an unlimited amount of time to pay the money back, as long as you remain in the home and continue maintaining it properly by paying taxes and other expenses. Over the duration of the loan, which may be many years, interest will accumulate. However, in the short-term you can spend the extra retirement funds without repayment worries.
Another variation in loan terms is how you choose to borrow the money. There is a lot of flexibility in how you can be paid. If you have an existing mortgage, funds from the reverse loan must be used to pay the balance right away. Fees and closing costs of the reverse mortgage will also be taken out of the amount you can borrow ahead of time. After those expenses are paid, you can receive the remainder in installments or as one payment. You can also opt for a line of credit, which will allow you to tap into your home equity as needed by extracting varying amounts. The choice you make will depend on your current retirement living expenses.
