As you enter the age of retirement, you may have some anxiety about your finances and not having enough money to live on. There is help in easing your fears and giving you the hope of a brighter financial future. One way of achieving more financial freedom is to take out a reverse mortgage loan on your existing home. I will help you better understand this process as we go along.
Advantages of a Reverse Mortgage Loan
One of the biggest advantages that a reverse mortgage has over a traditional or conventional mortgage is that repayment of the loan is deferred. While traditional loans require you to make payments each month for several years, a reverse mortgage requires no monthly payments to be made. You can remain in the home as long as you continue paying property taxes, homeowner’s insurance, and keep up maintenance on the home.
This is advantageous for retiring homeowners because without having to pay a monthly payment each month, it allows those on a fixed income to have more control over their finances. You can then rest assured knowing you have extra money to tap into for daily expenses, medical bills, or other things you may need. As long as you keep up the terms of the agreement, you are not required to make any payments and the loan only becomes due and payable if the borrower passes away or moves out.
Borrowing Calculations and Government Regulations
One thing that is considered when determining your eligibility for a reverse mortgage loan is the current market value of your home. This can be determined in several ways and depends on things such as if you already have an existing home mortgage, the age of your home, and the location. Whether you are obtaining a reverse mortgage loan with a large bank or a government agency, they will both use a reverse mortgage calculator to determine the amount you are entitled to under the terms of the loan.
The government-insured reverse mortgage program determines how much borrowers are eligible for based on their age, the value of their home, and the interest rate.
Regardless of how much you are eligible to borrow, the amount you can get the first 12 months following closing is limited to 60 percent of the amount of the loan.
Different Ways to Get Your Money
Once approved for a reverse mortgage loan, you have the freedom to choose the way you access the money. You can get it in one lump sum payment, in monthly installments, as a line of credit or you can combine any of the three. This is very beneficial and can be used to suit your particular needs.
Qualifications for a Reverse Mortgage Loan
The basic requirements to qualify for a reverse mortgage loan include: The age or the age of the youngest borrower (if you are married) must be at least 62 years old, the home is your primary residence, and you have adequate home equity. Additionally, borrowers must meet financial eligibility criteria to qualify, as established by HUD.
You cannot take out a reverse mortgage on a rental home or vacation home. For instance, if the home consists of several apartments and you reside in one of them, it may qualify. Other requirements include passing a credit check and paying off an existing mortgage with the loan (if you have one).
Repayment and Failure to Repay
As we have discussed, you are not required to make payments as long as you remain in your home. However, there are things you are responsible for to make sure you remain in good standing such as paying property taxes and homeowners insurance. You are also responsible for all upkeep and maintenance of the home. Repayment of the loan is due when you move out, pass away, or fail to comply with other terms. Failure to pay the balance gives the lender total control of the home. You will be granted any remaining funds if there is a positive balance once the loan is repaid.
