What You Should Learn When Considering a Reverse Mortgage

If you are ready to retire or already retired, financial concerns may be important to you. You might have heard a reverse mortgage can help you eliminate some of those concerns. A reverse mortgage is a loan only available to you if you are at least 62 years of age. It is special for many reasons, including the fact it can last for many years, as opposed to shorter traditional mortgages. But you need to educate yourself before applying for one. Here is what you should learn when considering a reverse mortgage.

What Prompted the Start of U.S. Reverse Mortgages

Reverse mortgages in some form or another have been offered for retirees in the U.S. since the early 1960s. They originated in the state of main when a woman approached a lender concerned about the possibility of losing her home due to her husband’s loss of income. The lender was sympathetic and developed a mortgage plan to suit her situation. That soon evolved into the reverse mortgage movement that has been popularized for retirees today. Although, today’s reverse-mortgages are somewhat different and government regulated.

Why a Reverse Mortgage is Not the Same as a Regular Mortgage

A reverse mortgage is different from a regular, or traditional, mortgage in several ways. One is you cannot get one if you are under 62 years of age. Another is a reverse mortgage allows you to receive ongoing payments from your lender, if you choose. A traditional mortgage requires you to pay the lender at regular intervals.

A reverse mortgage also differs from a regular mortgage because the reverse mortgage contract can last for a much longer period. A standard home loan often ends after a set number of years, such as three or five years. When the agreement is signed, a minimum monthly amount is established as necessary to meet the goal of paying the mortgage back on time. A reverse mortgage, on the other hand, is not due to be paid back in full at a particular time. Nor does it require scheduled small repayments over time. Instead, you pay the balance when you cease living in the residence.

How You Can Figure Out the Amount You Can Borrow with a Reverse Mortgage

You may be wondering how much money a reverse mortgage will allow you to access. The mortgage amount is based on your total available home equity at the time of the mortgage application. However, a reverse mortgage calculator is needed to take that total amount and use it to figure out the actual amount of funds you can borrow. That is because calculators for reverse mortgages use special formulas to figure that amount out. They are online tools that take into account such issues as government-imposed rules.

How Reverse Mortgage Funds Are Doled Out

Another helpful aspect of reverse mortgage is flexibility of choice regarding how you receive your money. Once you have a total determined by a reverse mortgage calculator, you can select from several payment options. A popular option is monthly installments because those payments act almost as replacement paychecks, allowing you to pay recurring financial obligations. However, you may prefer a single large payment to cover a major expense. Alternatively, you can draw from the available total as needed during retirement by setting up a home equity line of credit.

What Happens When a Reverse Mortgage Agreement Ends

A reverse mortgage agreement ends when you pay off the loan balance or leave your home. If the latter occurs first, you are given a short period in which to pay the remaining balance back. If you or a loved one does not do so, a sale of the property is initiated. Funds from the sale are put toward the loan balance. However, your other assets cannot be touched by the lender. Therefore, any balance still remaining at that point is forgiven. If extra funds are gained from the home sale, they are given to you.