There are a lot of things you have to prepare for when you retire, such as having more free time on your hands and what to do with that free time. Some of those things are expected, but you might not expect to have to mortgage your home. If you suddenly find yourself at that financial point, preparing for a reverse mortgage instead of a traditional one is worth considering.
Retirement Expands Your Mortgage Application Options
When you retire, or at least reach age 62, your mortgage application options grow. That is because you are at the qualifying age for a reverse mortgage. That is a type of home loan that provides you with money without immediate consequences. You keep the money and spend it in any ways you want for several years. Only when you leave the home or the contract is otherwise broken do you have to repay it.
Where to Start Your Reverse Mortgage Journey
Walking right into your local bank and requesting a reverse mortgage may be tempting, but you should not do so. There are many different reverse mortgage sources available. It is important to shop around a bit to find the one that is right for you. You also may want to get unbiased counseling for reverse loans to make sure you have all the details you need, first. Getting such counseling can help you avoid mortgage scams. It can also allow you to learn details a lender may not clarify immediately.
Having Your Borrowing Value Calculated Properly
To issue a reverse mortgage, a lender must establish the total value of your home and its borrowing value. Those figures differ greatly, mainly due to federal upper limits placed on borrowing. An online reverse mortgage calculator is a tool used to come up with the appropriate figures. The reverse mortgage calculator does that faster and more accurately than you or your lender ever could because of all the factors involved.
Dispensing the Calculated Borrowing Value to You
Another part of the reverse loan process you need to understand is how you will receive your funds. After the reverse mortgage calculator comes up with the appropriate figure, it is doled out to you by the means you request. For example, you might wish to ask for equal monthly payments. Another popular method is creating a line of credit to pull funds from when you require specific amounts for certain purposes. The third method is similar to that used when a traditional home loan is in place. You get all of the funds available immediately. That is called a lump sum payment.
Reverse Mortgages Have a Price to Pay
Often, reverse mortgages are advertised as being “free and clear,” but they are not. Each one comes with closing costs and other fees. Also, each one gives you a temporary, albeit long, reprieve from having to make repayment. However, that payment is eventually due, with interest. The interest on a reverse mortgage is much higher than on a traditional home loan because the reverse loan simply lasts much longer. Therefore, interest has more time to grow.
The Future Ramifications of Reverse Mortgage Application
The most important thing to know about a reverse mortgage is it has future ramifications. You need to understand those before you sign the contract. For example, having one makes moving out of your home impossible. Also, if you are unable or unwilling to repay what you owe when you finally owe it, the home will no longer remain yours. Its sale will be necessary. However, as long as you agree to the long-term caveats of a reverse mortgage, it might be exactly what you need to stay financially strong in retirement.