If you are retired and own your own home, you might be living inside your financial security. That is because you can turn part of your home value into money, if needed. One way to do that is with a traditional loan. However, you can also apply for a reverse mortgage, as long as you are at least 62. But first you need to know the lowdown about reverse mortgages.
Paying Back Traditional Versus Reverse Loans
Even considering a reverse mortgage is usually done because a retiree does not want to deal with a mortgage bill. You see, a traditional loan on your home comes with immediate financial consequences. You have to make your mortgage payments on time. Otherwise, the home might be lost. A reverse mortgage comes with no such bills to pay. It is designed to not require any type of repayment for years, allowing you a less stressful retirement.
Determining How Much Money is Available
When you take out a reverse mortgage on your home, one of the most important things to determine is how much money is available. The way to do that is with a reverse mortgage calculator. The calculating tool is an online program that figures out the borrowing rate for you. It also can help you determine how to receive those available funds.
Ways to Borrow Your Reverse Mortgage Money
There are several ways to receive your reverse loan money. For example, you can request the entire total the reverse mortgage calculator comes up with to be given to you immediately. Alternatively, you can request ongoing smaller payments, in which case the calculator determines the payment side for which you are eligible for a month. Then you receive that same amount monthly until funding runs out.
A third option that is sometimes less thought of is a line of credit. When applying for a reverse mortgage line of credit the process is similar. The calculator determines your credit limit. You then draw from that limit only when you need to. It is similar to a credit card in that respect.
Deducting Fees and Setting Aside Certain Funds
When you start looking into applying for a reverse mortgage, you need to know a few things about what you can borrow. For example, it is never the full home value thanks to laws in place to prevent that. Also there are fees you have to pay when applying, but they are not usually billed to you. Instead, they are typically deducted from the total amount you can borrow in the beginning.
Certain reverse mortgage funds may also be earmarked for paying off a debt you already owe, if you have a traditional mortgage to begin with. It has to be paid in full in the early stages of the reverse loan setup. Therefore, only funds not needed for that can be given to you.
What Happens When Your Loan Agreement is Violated
Another thing to think about is what happens when you do not stick to your loan agreement. You cannot violate a reverse mortgage agreement in the same way you would a standard loan, since you have no preset payment deadlines. However, you can violate it by moving out of your home or failing to meet ownership obligations. In such a case, you are given a short time to make full restitution. If you do not, sale of the home is initiated.
Making the Final Assessment to Choose
Choosing between a traditional mortgage and a reverse mortgage is not as simple as it seems, as you can see. There are a lot of factors involved. You have to decide which mortgage is right for you based on issues like your immediate and long-term financial needs, as well as how long you expect to live in your home. If you are still unsure, reverse loan counselling can help you pick.
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