You may have heard of a reverse mortgage, but you may be unsure what it is or how it can be useful to you. If you are of retirement age, one may help you get more money to make up for a loss of working income. However, you may still have concerns about taking on additional debt. The key thing to understand is that the debt from a reverse mortgage is not the same as the debt from a regular home loan. Below is more information about how this special type of home equity mortgage conversion mortgage (HECM) works.
How a Reverse Mortgage is Defined
A reverse mortgage is defined as a retiree home loan. It is only available to you if you are at the age of retirement. It is further defined as a home loan that pays you. That means you can set up a payment system with your reverse mortgage lender by which the lender will pay you monthly. That is unlike a standard mortgage, which would require you to make monthly payments back to a lender. Therefore, you will not be acquiring another monthly bill when you sign up for a reverse loan. Instead, you can pay it back on a more long-term basis.
Figuring Out the Reverse Mortgage Value
The amount you can borrow using a reverse loan is determined by many different factors. That’s why reverse mortgage calculators are necessary. The tools are used by lenders to figure out the current worth of your home. They take into account such things as current government caps on percentages of home equity that can be borrowed. When using a reverse-loan calculator app, your lender will also consider the current status of your home. Its age and condition will be assessed, along with any outstanding mortgages that exist for the property.
How a Reverse Mortgage Can Make Your Retirement Easier
There are many ways in which a reverse mortgage can help you when you retire. For example, in addition to not adding a monthly bill to your financial burdens, a reverse loan can help you get rid of one. You cannot have an existing standard mortgage and a reverse loan at the same time unless you agree to pay off the first mortgage immediately with reverse loan funds. By doing so, you will rid yourself of your ongoing standard mortgage bill.
A reverse mortgage can also help you by giving you an additional reliable income to make up somewhat for the drop in income you may experience when you retire. By supplementing your income, it can lift a variety of your budget concerns. For example, the funds you will get can help you pay monthly bills. They can also be used to fund one-time expenses like vacations or medical bills. You will have the freedom to choose how you spend the money.
What to Know About Reverse Mortgage Payment Periods
When applying for a reverse mortgage you must understand traditional rules about payment periods do not apply. You do not have to pay the lender back at set intervals. Also, the total loan balance will not be due by an exact date. Instead, the rule designating the length of a reverse loan is one of residency. That means you have to live in your home and use it as your main residence for as long as you want to have the loan actively. If you stop living in the home, the balance will be owed soon after that point. However, temporary absences like vacations or hospital stays do not count.