What comes to mind when you are fast approaching the age of retirement? Do you have the financial capacity to cater to your needs after tendering your resignation letter? Of course, the income you’ll receive afterwards may reduce, especially if you don’t have any other income stream. At this point, many retirees become perplexed. To some, a traditional loan may be the easy way out. But this is just a trap, as you have to repay your debts under a short period, and failure to do so will lead to foreclosure. The last thing you want is to be in this situation. So, what is the way out? A reverse mortgage.
Introduction to Reverse Mortgages
We all have necessities to take care of now and then. There are unavoidable bills to pay, be it medical, upkeep, or even tuitional. As a retiree, the hope of receiving a paycheck is out of the question, except you have notable investments. In such situations, a reverse mortgage comes in handy. But bear in mind that your lender will consider some factors using a reverse mortgage calculator, including your home equity, your age, and the current interest rate.
According to federal law, you can access up to 60% of your home value. Why is it so? If you have an existing mortgage, it needs to be paid off; and there is also the closing fee as well.
Reverse Mortgage Types to Access
Before you apply for a reverse mortgage, you should know what it is and how it works. First, this type of mortgage comes in two options:
- Private single-purpose reverse loan
- Home Equity Conversion Mortgage (HECM)
The first type of reverse mortgage is available for low- or mid-income earners who want to cater to specific needs surrounding their homes. Some of these necessities may include property taxes, repair costs, and renovations. Private financial institutions provide this type of loan. On the other hand, HECMs are government-insured. One government agency that offers this mortgage is the U.S Department of Housing and Urban Development (HUD).
With traditional loans, you have to pay on your mortgage principal, regularly. These repayments may come up every month end; thus, putting you under duress. However, with the reverse mortgage, you can receive money to meet your needs and pay back whenever you want. But to qualify for this loan, your home must be your permanent, primary residence. Additionally, you should be able to pay property taxes, home insurance, and maintenance cost.
How Can I Receive Payments?
Once you’ve qualified for a reverse mortgage, you can determine how to receive your funds – as a line of credit, as monthly payments, or in a lump sum. There is even an option to combine two or all of these alternatives.
“So, when does a reverse mortgage becomes invalid?” you may ask. Here are some conditions for that:
You stay away for longer than six months for non-medical purposes.
When your home no longer becomes your primary residence.
You are away for longer than 12 consecutive months.
You can no longer meet other costs – property taxes, home insurance, and maintenance cost.
When you don’t comply with FHA specifications
In the event of death and there is no co-borrower listed.
The benefits a reverse mortgage provides are vast. However, you have to be sure that your needs are worth applying for one before contacting a lender.