What You Need to Know About Reverse Mortgages
What You Need to Know About Reverse Mortgages
If you need quick access to extra money during retirement, it may be worthwhile to take out a reverse mortgage on your home. As a grandparent raising our grandchildren, my husband and I had considered a reverse mortgage, simply because the unexpected expense at a time in life when we had become disabled, we didn’t have any extra income. There are tons of unexpected expenses when we were put in this situation, like school clothes, school supplies, clothing for the girls, shoes, sports activities , etc. I could go on and on with these expenses. There are some grandparents that are put in a financial bind because they have to hire attorneys to fight for custody of the grandchildren. Hiring an attorney for a custody battle, or adoption procedures, can run into the thousands of dollars. Thankfully we didn’t have to deal with that. Unlike a traditional mortgage, a reverse mortgage will not require monthly payments on your part. In fact, it is more likely that you will receive monthly payments, unless you select a line of credit or single large payment. But before you sign a reverse loan agreement, here’s what you need to know about the process.
What a Reverse Mortgage Can do for You
A reverse mortgage can help you during retirement because you do not have to repay any part of it early on. The money you borrow will be spendable on anything you want. Therefore, it can help you to lead a more comfortable life during your retirement. For example, your loan funds could be partially utilized for a family vacation or simply help you with necessities, like paying your monthly utility bills.
How Much You Can Borrow with a Reverse Mortgage
When applying for a reverse loan your home must have a certain value. Otherwise, the reverse mortgage lender may reject your application. The exact value of the home will also influence how much you can borrow, if your loan is accepted. Using a special tool called a reverse mortgage calculator and a set formula, that amount can be easily determined. Government guidelines and other factors will be included in the estimation the reverse mortgage calculator makes. Also, keep in mind that the law will not allow you to borrow the full amount of your home’s equity. Only a percentage will be available.
How to Personally Qualify to Apply for a Reverse Mortgage
To qualify for a reverse mortgage, you must be 62 years old or older and, of course, own your own home. If you want your spouse to go with you to the reverse-loans lenders office and cosign the loan agreement, he or she must also be at least 62 years of age. If he or she does not meet the age requirement, you can still apply for the loan. However, only your name will be on the agreement, if your application is approved.
Another requirement is the home in question must be the permanent residence of anyone who signs the mortgage agreement. In other words you and, if applicable, your spouse must agree to stay in the home for as long as the agreement is in effect. You can take out a reverse loan on a home with rental units, but only if you live in one of those units.
What to Do if You Already Have a Traditional Mortgage
If you already have a traditional mortgage, you may still qualify for a reverse loan. However, you will be required to pay back the existing loan in full when you first take out a reverse mortgage. Therefore, the funds you will have available for other purposes after that may be greatly reduced. Talk to your lender to determine how much money you can access after the loan repayment.
How Defaulting on Your Reverse Mortgage Works
Defaulting on a mortgage usually means missing payments, which can cause the lender to evict you. That is not the case with a reverse mortgage because there are no scheduled payments you will have to make. Therefore, you can’t miss any. Also, you will still own your home and therefore cannot be evicted from it. The most common way to default on a reverse mortgage is to move out of your home while the loan agreement is still in existence. If you do that, the loan balance will be due right away. When you choose not to repay it or are incapable of repaying it, your home can be sold. The balance will be partially or fully paid off using the funds from the sale.
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