The retirement process can be fun in some ways, but financially it can be a bit of a burden. When you own your own home, you can ease that burden with a mortgage. However, a traditional mortgage will not always give you the most money or the best set of circumstances to deal with. A reverse mortgage might be a better answer. Here are some reverse mortgage types and considerations to get you started on the path to deciding if one is right for you.
The Purpose of a Reverse Mortgage in a Nutshell
In a nutshell, the purpose of a reverse mortgage is to allow you “free and clear” money to spend when you retire. That means you do not receive a mortgage bill at all. In fact, you are not technically obligated to ever repay the mortgage. You can cover what you owe by simply selling your home in the future. The only reason you would have to repay the balance is if you wanted to keep the home in your family.
Types of Reverse Mortgages to Consider
Not all reverse mortgages are the same. For example, jumbo reverse mortgages are available if your home is worth more than the cash cap for a regular reverse mortgage, which is subject to potential changes annually. You can also choose between government reverse mortgages, also called home equity conversion mortgages, or mortgages issued by private lenders.
The Worth of Your Home Affects Your Reverse Mortgage Options
One thing to consider is the worth of your home definitely influences the options you have regarding reverse mortgages. For example, a home with a low value does not qualify for a jumbo reverse loan. If the value is too low, any type of reverse mortgage may even be out of the question. The way to determine the value and equity available to you for spending is to use a reverse mortgage calculator. The mortgage calculation tool for reverse loans uses preset guidelines to figure out the financial situation you are in. It determines both loan eligibility and, if eligible, total available funds.
You Select How Funds Are Given to You
Another reverse mortgage consideration is fund distribution. Once the reverse mortgage calculator sets an amount, you pick ways to receive it. Your options are quite different from options you get with a traditional mortgage. You can create a credit line you draw from when you choose. You can also choose one big payment, which is similar to how a traditional loan works. But the third option is fairly unique. You can opt to get monthly ongoing checks in the mail, thus supplementing your regular retirement income.
Maintaining Your Obligations with a Reverse Mortgage Agreement
Another thing to think about is a reverse mortgage, while flexible and relatively safe, does require that you maintain your obligations as a homeowner. Taxes, insurance and property upkeep will all still be your responsibility. If you fail to meet those obligations, the loan agreement may be violated. That can cause your home to be sold or your balance to be due.
How Long You Have to Stay in Your Home
You can only apply for a reverse mortgage on your primary residence, and it has to stay your primary residence for as long as the loan is active. You can opt to move out of the home whenever you want, but when you do you have to pay all of what you owe or let the home be sold. How long you live in the home is entirely your choice, but the longer you stay the longer the reverse mortgage stays in effect.
Taking All Factors Into Consideration
How much is your home worth? What type of reverse mortgage do you qualify to get? How long do you want to stay in your home? Taking all factors into consideration is important, so always ask yourself those questions and more. Make sure every aspect of what signing a reverse mortgage contract means is clear to you before you agree to the terms. That is the best way to ensure you will be happy with your decision.