*This is a guest post*
When you need to increase your retirement income, you may not feel like you have many options. One that you do have is to use home ownership to your advantage by borrowing from the cash value of your home, also known as your home equity. However, taking out a regular loan to access that cash value can be problematic, especially since such a loan must be paid back relatively quickly. A reverse mortgage can offer you more financial flexibility and freedom when you retire, as long as you are at least 62 years of age.
The Immediate Financial Benefit of a Reverse Mortgage
When you apply for a reverse loan, a reverse mortgage calculator will be used to gauge the value of your home and how much you are allowed to spend. The reverse equity calculator tool factors in issues like government rules, the age of your home, and it’s condition. Your lender will use the results gained from the reverse mortgage calculator to determine what you can borrow, but you determine how to pay it back.
A reverse mortgage lender provides loan money on your terms. You can select to open a line of credit against your home equity. Alternatively, you can ask for one large payment. Another popular choice is to set up regular payments you will receive from the reverse mortgage lender. Those monthly payments can function similarly to paychecks, providing you with income to cover predictable ongoing bills and other not so predictable expenses.
The biggest benefit of a reverse mortgage over a traditional loan is that, no matter which borrowing method you choose, repayment is unnecessary for many years. The loan is designed specifically to provide you with financial relief for your retirement by not adding to your ongoing bills. Only when you cease living on the property will you owe back what you borrowed with interest. But even then you can opt to allow the sale of the home, if you do not want to repay your loan balance.
How You and Your Home Can Qualify for a Reverse Mortgage
To qualify to sign a reverse mortgage agreement, all parties must be 62 or older. For example, your spouse can sign the agreement with you, if he or she is at least 62. If not, you must keep his or her name off the loan document. Anyone who does sign the agreement must also agree to continuously use the home as a primary place of residence for as long as the loan is in place.
The home itself can be of almost any type, but it may not have more than four apartments. It also may not be a mobile home. Additionally, the home must have enough value for a reverse mortgage loan agreement to be worthwhile. Since you will continue to own the home while the loan is in effect, you must also agree to pay and be financially capable of paying expenses relating to the maintenance of the home. For example, you must pay the annual taxes or risk losing the property.
Getting a Reverse Mortgage from a Government or Private Lender
Reverse mortgages can come from either government agencies or private lenders. Government agencies who issue them often call them home equity conversion mortgages (HECMs). There is nothing wrong with either type of reverse loan, but HECMs do have more protections in place. Also, some privately offered loans are scams and should be avoided. When getting a reverse mortgage from a private lender, always choose a lender you have previously done business with or studied the reputation of.
Thank you for reading.
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