If you are at least 62 years old you can apply for a reverse mortgage. The question is should you do so? What is a reverse mortgage and what makes it better than a traditional mortgage are questions that must be answered before you ever consider signing a loan agreement. Therefore, you must start by learning the basic aspects of reverse mortgages.
Why Reverse Mortgages Are Unique Loan Agreements
There are a few things that make reverse mortgages unique. One of the most important is that when you obtain one you can choose to be paid each month. That is in stark contrast to a typical loan agreement, which would require you to make payments to the lender at similar intervals. The fact that you will be receiving payments instead is what makes a reverse loan so helpful during retirement.
Reverse mortgages are also better options for you as a retiree because you will retain home ownership rights. No eviction for non-payment will be required because no payments will be required until well into the future. In fact, you are expected to keep a loan balance for many years. As long as you retain home ownership and continue living on the property the loan cannot be called in.
Calculating What You Can Borrow Through a Reverse Mortgage
Of course, obtaining a reverse mortgage is only worth it if you will be allowed to borrow a significant amount. A reverse loan calculator app, which is a special online tool, can be used to see how much you can borrow. The amount you can borrow according to a reverse mortgage calculator will not be the full value of your home. It will be a set percentage based on current federal laws, the age of the home, the condition it is in and current market values in your local area.
Qualifying to Receive a Reverse Mortgage
Qualifying to receive a reverse mortgage is not as simple as being of retirement age (62 or older). Although, that is one requirement for both you and any cosigner you select. To fully qualify your home must pass a value assessment to make sure it has enough equity. You must also undergo a check of your credit and prove you have sufficient income to pay taxes and other bills associated with the home. Additionally, you cannot have any other mortgages on the property. If one exists, you must use the first reverse mortgage funds you receive to pay the balance on it so that only your reverse loan will remain active.
Reverse Mortgages and Acceptable Home Types
The main requirement for taking out a reverse mortgage on a property is that you must live on that property for the majority of the time. Therefore, vacation homes and rental properties are ineligible. However, you may be able to get a reverse mortgage on a condominium or apartment building as long as you are residing in one of the units personally.
The Future Implications of a Reverse Mortgage
A reverse mortgage can relieve a lot of financial pressure during your retirement, but you must also consider the future implications of it. For example, the amount you will owe including interest when it comes due will be far higher than the amount you borrow initially. Also, if you choose not to pay the loan balance when you leave the property it will be placed up for sale. Therefore, if you have plans to leave it as an inheritance to your loved ones, you must have a repayment plan in mind.