If you have been hearing a lot about how a reverse mortgage can help you when you retire, you probably have a lot of questions. What is it? How does it work? Is it really better than a standard home loan? It is best to get answers to such questions before you jump blindly into the reverse loan application process. Below you will get many of your reverse mortgage questions answered.
Why is a reverse mortgage useful when you retire?
You have probably heard that a reverse mortgage is linked directly to retirement. That is because you cannot qualify for one until you reach at least age 62. What makes a reverse mortgage particularly useful when you retire is you can borrow money without having to repay any right away like you would traditionally when taking out a regular mortgage. Therefore, you can increase your retirement income and live comfortably, rather than getting deeper in immediate debt.
What makes a reverse mortgage loan more beneficial than a conventional one?
The most obvious advantage of a reverse mortgage over a conventional home loan is lower risk of default. If you apply for a conventional loan, you will be obligated to repay your debt in a set amount of time and at particular intervals. If you miss payments, the lender may choose to evict you. A reverse mortgage lender does not set such repayment terms. In fact, payments will not be due for a long time after you borrow the money. Also, a term of the reverse loan is that you must continue living in your home. Eviction is completely impossible because the lender would be violating the requirements of the loan. Therefore, you cannot default in the same way on a reverse loan as you would on a traditional one.
How is the amount you can borrow with a reverse mortgage determined?
When talking about how reverse mortgage amounts are determined, you must understand both government reverse mortgages, also known as home equity conversion mortgages, and loans from private lenders are available. However, the government monitors both. Government regulations do not permit you to borrow the full value of your home equity in the form of a reverse loan. You can only borrow a percentage of it.
If you are unsure how much you can borrow, don’t worry. The lender can use a reverse mortgage calculator to figure that out for you. The use of a reverse-mortgage calculator is important because it will factor in government standards and other issues impacting what you can borrow. As for the total home equity, it will be impacted by many things, such as whether you have an existing mortgage and how old your home is, as well as its size.
When do I have to repay the reverse mortgage?
When you obtain a reverse mortgage, it will be a long-term loan. No immediate repayment will be required. Additionally, you will not be required to repay the loan for as long as you live in the home. Therefore, the length of the loan will be dictated by you. To have the loan continue, the home must be your primary home. However, you can leave it for short periods, such as to go on vacation.
What happens if the reverse mortgage is not paid back?
If you leave your home, the lender may give you a grace period, such as six months, in which to pay the remaining balance. If the loan is not paid back, the sale of the home will be required. Proceeds from the sale will be used to pay the loan. However, the lender cannot keep additional proceeds beyond the amount owed. You or your family will receive that balance. Additionally, the lender cannot seize other assets. Therefore, if a loan balance still exists after the sale of the home, the lender must negate that amount.