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A reverse mortgage is a special type of home loan that is available when you retire and are over the age of 62 which allows you to convert equity in your home into cash. These loans were created to give seniors access to cash for expenses. They also take away some of the risks of a traditional mortgage, such as potential eviction for missed payments.
Your Home is Safe When You Get a Reverse Mortgage
One of the biggest reasons to get a reverse mortgage instead of a traditional home loan is home security. A traditional loan comes with the threat of eviction if you miss a payment. A reverse mortgage has no such potential threat for two reasons. First, part of the loan agreement is you must stay in your home. The lender wants that as much as you do. Second, there is no requirement to pay any of a reverse mortgage back early or at regularly set dates. Therefore, there is no way to miss a payment.
You Can Receive Reverse Mortgage Funds Instead of Paying Them
Another reason a reverse mortgage is ideal is that you have to start paying a traditional loan back in small instalments almost right away. With a reverse mortgage, you receive funds on an ongoing basis, instead. The supplemental payments can function in place of the paycheck you lose when you retire, at least until available funds run out. Therefore, you do not have the same types of worries associated with a standard home loan, such as inability to pay portions back quickly enough.
Finding the Best Reverse Mortgage Lenders
When looking for a reverse mortgage lender, you must choose one with a good reputation. Often, small banks and credit unions offer such loans and are legitimate. However, they may not have the same protections in place as larger financial institutions. For example, nationally recognized financial institutions are extremely well established and carefully regulated. When you do business with such an institution, you do not have to worry about reverse mortgage scams or other issues that may arise with smaller lenders.
Establishing What You Can Borrow
Before you can borrow reverse mortgage funds, you must determine how much you can borrow. The funds are taken out of the total value of your home. Home value is also called equity. A reverse mortgage calculator can help you figure out your total equity and the equity available to borrow. Those amounts are different due to government regulations that prevent the full available amount from being borrowed. A reverse-loan calculator tool uses established rates and formulas to figure out the funds available to you.
Exploring Alternative Reverse Mortgage Borrowing Options
There are several ways to borrow your reverse mortgage funds. Once the reverse mortgage calculator determines what you can borrow, a payment system or schedule is established. It is most common to receive ongoing equal payments, but you do have other options. For example, you can request a lump sum or line of credit to deal with major expenses as they arise. Each option has its own benefits and drawbacks, which you must discuss with your reverse mortgage lender in detail before making a decision.
Qualifying to Apply for a Reverse Mortgage
To get a reverse mortgage you have to be at least 62, and so does your spouse if his or her name is going on the loan contract. You must also reside in the home on a full-time basis. A credit check is required as well. The credit check establishes your ability to perform continued property maintenance and pay expenses like insurance or taxes. Since you remain the owner of the home, those obligations are still yours for the duration of the loan agreement.
This is a collaborative post.
Welcome to Birds and Lilies! I'm Lou: mother, blogger and freelance writer. This is my lifestyle blog, where I talk about motherhood, infertility and IVF, beauty, my love for food and wine, as well as my thoughts about stuff, and our real-life and travel adventures.
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