When you retire, you become eligible for many special privileges. One is the privilege to apply for a reverse mortgage, if you choose. The question is should you choose to or not? To answer that question, you need to first get the answers to several others. Here are some of the top questions about reverse mortgages answered.
Why Not Just Get a Standard Home Mortgage?
A standard home mortgage works in some situations, but it is not ideal during retirement. The biggest reason is it has a loan period. A loan period is a set amount of time to repay it, such as five years. It also has many partial payment deadlines within that loan period. As a retiree, you may find it difficult to meet those financial obligations.
How Does Reverse Mortgage Repayment Differ?
The reason a reverse mortgage is different is it has no set loan period. Instead, the loan period is however long you remain a primary resident in the home. That is, as long as you continuously meet the other requirements of the loan agreement. So, when asking yourself are reverse loans good ideas consider how long you intend to spend living in your home. Additionally, you choose when to make partial repayments during that span of time. Therefore, you have total flexibility regarding the repayment process.
Does a Reverse Mortgage Let You Borrow Full Home Value?
A reverse mortgage does not let you borrow the full value of your home. First, funds you can borrow are regulated federally. Those laws prohibit total value borrowing. Second, you cannot borrow equity already in use, such as when another mortgage on the property already exists. The total you can borrow is determined before you sign the loan contract.
What if You Do Already Have a Traditional Mortgage?
If you do already have a traditional mortgage, you must make sure a reverse mortgage is still financially viable. To do so, you must determine how much money you will have to use after funds are deducted to meet the initial mortgage obligation. That is because both mortgages cannot remain active concurrently.
What About Reverse Mortgage Fees?
There are fees you have to pay when setting up a reverse mortgage. However, those fees are often deducted from the available loan amount, rather than you having to pay them later. One exception is interest fees. Interest accumulates with a reverse mortgage just as with a traditional one. The only difference is the loan lasts longer, so the interest you pay eventually is typically much higher.
Can You Pay Regular Ongoing Bills with Reverse Mortgage Funds?
You may be wondering if things like utility bills can be paid with your reverse mortgage funds. The answer is yes, and it is especially easy to do so when you request monthly reverse mortgage checks to be sent to you. However, you do need to be aware that those checks will only keep coming for a certain length of time and plan accordingly.
Can You Borrow Funds in Other Ways?
If you do not need or want monthly installments, there are other ways to get reverse mortgage funds. Lump sum payment is one. Another is opening a credit line linked to the home equity available for borrowing. Doing so lets you choose exactly how much to borrow and when to borrow it.
How Do You Choose Between Mortgage Types Ultimately?
Ultimately, you choose between mortgage types based on your personal situation, as well as your preferences. There are situations where a traditional loan on your home value might be just fine. However, if you need more retirement funds with less stress, a reverse mortgage is more likely to be best. That is, as long as you can live with the requirements of the agreement.
*This is a collaborative post*