You’ve probably heard the term reverse mortgage, but do you know what it is? The first time I heard the term, I immediately went and looked it up. While it wasn’t something that could help me, at least not yet, it is something older homeowners can look into. A reverse mortgage helps provide homeowners 62 and older with financial assistance so they can stay in their homes longer. It was developed by a bank in Maine in 1961 as a way to help a widow stay in her home when her husband died. And it’s been helping people ever since.
Is A Reverse Mortgage A Good Option For Retirees?
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What Exactly Is A Reverse Mortgage?
A reverse mortgage – or home equity conversion loan – is a way to borrow money with your home as collateral. It provides you with extra funds every month and gives you a way of staying in your home without falling deeper into debt. You see, a reverse mortgage is only repaid when you fail to pay your property taxes, fall behind on maintaining your home, or if you permanently leave it, for example, selling it to downsize. The biggest downside of a reverse mortgage is that it collects interest. So, when you are ready to repay it, you’re going to own more than you borrowed.
But Extra Funds Every Month Is Great For Retirees
Hey, I’ll be the last person to say that I wouldn’t enjoy extra money every month once I retire. That’s what a reverse mortgage does for you. It uses the equity in your home to provide you with a form of income. That income can be used to pay off your existing mortgage if the loan is larger enough. What’s really cool about the money you receive from a reverse mortgage is how you receive it. You can get your money:
- As a lump sum when you close the loan (minus any payments you made to your current mortgage if you’re paying it off)
- As a line of credit that you can use to withdraw money whenever you want
- As a monthly payment for as long as you still own the home and meet the other requirements
- Or a combination of all three!
So How Do I Go About Getting A Reverse Mortgage Loan?
If you meet the age requirements, you can contact a local reverse mortgages lender who deals with FHA Home Equity Conversion Mortgage loans and inquire about getting one. They will use a reverse mortgage calculator to determine if you are eligible for the loan and how much you qualify to borrow. This is based on the current value of the property, an existing mortgage balance, and your creditworthiness. The reverse mortgage calculator can also tell you about how much you’ll pay in fees and your repayment options.
Do I Have To Pay It Back?
Yes, you have to pay back a reverse mortgage loan, but that only happens when you move out of the property the loan is against or the borrower dies. If one of those two things happens, the reverse mortgage loan and the interest it has accrued becomes due. Typically, the house is sold to pay the reverse mortgage and if there is any money left over, it goes to the borrower or your heirs if you happened to die. If your home doesn’t sell for enough to pay off the loan, the lender will forgive the rest.