Family • Wellbeing • Adventure

Monday, 13 January 2020

Reverse Mortgages | What are they & do you need one?

There are lots of adventures to be enjoyed when you retire. However, it takes a healthy nest egg to enjoy them. You also need funds for medical or emergency situations. It can be difficult to amass those funds sometimes, especially after you are no longer receiving your working income. A mortgage can help, but the question is what type should you get? Once you retire, you have the option of either a traditional or a reverse mortgage.

Variations in Loan Repayment Processes to Know

One of the biggest differences between a traditional home mortgage and a reverse-loan is in the repayment processes for each. You have to start repaying a reverse mortgage in chunks almost right when the money is first loaned to you. Those scheduled installment payments are set up so you will completely pay your loan off by a certain date. That is called the loan period. Often, that period is three or five years.

A reverse mortgage has no schedule of repayment. Although it does have a loan period, the exact length of that loan period is an unknown factor when you sign the mortgage agreement. It is determined by however long you maintain good standing with the lender and follow the rules associated with the loan. For example, one rule is you must keep living in your house until the loan is no longer active.

Refinancing Reverse and Traditional Home Mortgages

One way in which traditional and reverse mortgages are similar is they can each be refinanced. You may want to learn how to refinance reverse mortgages if you find yourself in need of additional funds. However, it is not advisable to refinance if you have no need to, even if you qualify to do so. If you do refinance, it can help you to make ends meet when retirement money is tight, but the initial reverse mortgage agreement may be enough to accomplish that goal.

The Reverse Mortgage Installment Plan Option

Traditional and reverse mortgages differ a bit in terms of fund borrowing. For example, a traditional mortgage typically pays you a one-time large amount. While you can select that option with a reverse mortgage, you also have two other choices. One is to create a line of credit that lets you take out money only when you want or need it in amounts you choose. The other is an installment plan option.

The reverse mortgage installment plan option allocates a certain amount of money per payment. Those payments are then provided to you each month at a certain time. The predictable nature of such a borrowing option is ideal when you need funds to pay utilities or other monthly obligations.

Reverse Mortgages and Home Eligibility Requirement

Your home has to qualify for you to receive a reverse mortgage. Qualification requirement include decent home value because there have to be enough funds available for you. The home also has to be your main residence and cannot be a large apartment building, even if you are the owner. Small apartment buildings are sometimes eligible, but only if you are the owner and reside in one of the units.

Getting to the Root of Your Choice

You might still be unsure if you should get a traditional mortgage or a reverse loan. If that is the case, you need to get to the root of your choice by establishing your top priorities. For example, if you want to move out of your home anytime soon, a reverse mortgage is a poor choice. However, if you intend to stay put and want as much financial freedom as possible, it may be the ideal option for you.

K Elizabeth xoxox

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