As a retiree or someone approaching retirement age, money is something you need to think about. Your income inevitably drops with retirement. If you want more money instead of less so you can stay comfortable during retirement, you are not alone. Many retirees have the same wish. That is why lenders created reverse mortgages just for retirees. Here is a brief guide to getting a reverse mortgage to ease your mind regarding your finances.
What Getting a Reverse Mortgage Actually Means
Before you apply for a reverse mortgage, you should fully understand what the term “reverse mortgage” means. When you get a regular home loan, you are provided with money from your lender. Then you have to pay that money all back by a particular date. Additionally, you receive regular mortgage payment bills. If you miss payments, you risk losing your home.
A reverse mortgage is different for several reasons. Your reverse mortgage lender will give you money with no initial obligations to pay it back. The loan lasts for a long time and has no set end date. You also do not receive monthly mortgage bills. Therefore, the money you receive can truly help you during retirement without creating another bill you have to pay. Full repayment is only due when you stop living in the mortgaged home.
Making Sure Your Home Qualifies for a Reverse Mortgage
To get a reverse mortgage, your home has to qualify for one. To qualify, it must be worth enough to make borrowing from its equity financially worth it. In addition to current market values, a reverse mortgage calculator tool can help you figure out how much of that value is available to borrow. There are specific formulas used to figure out how much equity is available due to government restrictions on reverse loan terms.
The type of home you have and whether you live in it full-time also matter. Even if a reverse mortgage calculator deems such a loan financially viable, you cannot obtain the loan unless you live in the home. That means a rental or vacation property is ineligible for such loan assistance. Sometimes small apartment buildings do qualify, but you must own an apartment building and reside in one of the apartments to potentially get the reverse mortgage.
Making Sure You Personally Qualify for a Reverse Mortgage
To get a reverse mortgage you must be at least 62 years of age. Anyone else who signs the mortgage agreement, such as your spouse, must also meet that age requirement. A credit check is also required because you will retain responsibility for your home and ownership of it. Therefore, your lender has to make sure you are capable of paying your property taxes. You must also be capable of property maintenance and meeting your other obligations as a home owner.
Getting a Reverse Mortgage with an Existing Regular Mortgage
You cannot simultaneously maintain a regular mortgage and a reverse mortgage on your home. However, you can apply for a reverse loan when you have a standard mortgage already. If you qualify, you are simply obligated to immediately pay the first mortgage with some of the reverse mortgage funds. You can then use the remaining funds as you see fit. Those funds can be handy for anything from taking a dream trip during retirement to paying necessary medical bills.
Discuss your options with a financial adviser and see what best suits you.
This is a contributed post.