You may be years or days away from retirement. Whichever the case may be, you definitely want an enjoyable post-retirement lifestyle. Although your paychecks are steady and enough to meet your present and future needs, you can’t be sure of the same income size once you are no longer in the working class. So, how do you cater to your expenses? A loan may seem appropriate, but not just any financial loan. A reverse mortgage will come in handy at this point. However, you should know what it means and how it works before applying for one. And this guide provides accurate details.
Reverse Mortgages vs. Traditional Home Loans
Most retirees with fewer or no income stream may opt for traditional home loans. However, these “seemingly” financial systems have huge clauses that may leave one hanging out to dry. The urge to repay the loan immediately can make any homeowner uncomfortable as such an individual would have to go all the way out to pay the lender or risk foreclosure.
However, with a reverse loan, you get paid by your lender and still keep your home. In other words, the reverse mortgage puts money in your pocket. A part of your home equity is converted into payments, which you can access to meet various expenses. There is no repayment, as long as you live in your home.
How to Get a Reverse Mortgage
“Do you need a loan?” this is the question that should be on your mind before contacting your lender. If your home equity is lesser than the amount you intend to take, then you don’t need a reverse mortgage and should consider other options. Also, the required age to obtain this loan is 62 years and older. For this reason, most people think of it as a retirement loan.
When applying for a reverse mortgage, your lender will run a credit check using a reverse loan calculator to determine your eligibility and creditworthiness. This estimation tool puts into consideration your home’s age, location, and condition. According to federal law, you can’t borrow your home’s total value. It is also worth mentioning that your home should be your primary and permanent residence. Reverse mortgages don’t apply to rented apartments or vacation homes.
There is More
One thing that makes a reverse mortgage unique is its flexibility. Unlike the traditional loan that takes money from you, a reverse loan puts money in your pocket. However, you have to keep up with other expenses, like property taxes, home insurance, and maintenance cost. For this reason, you have to be sure that you need this loan. As discussed before, your lender will determine your eligibility using a reverse mortgage calculator.
Once you qualify for a reverse mortgage, you can set up your funds in any three ways. You can set it as a line of credit – this works as your credit card and gives you the avenue to borrow funds whenever you want. Another option is to receive your payment in a lump sum. Going with this alternative can help you address several needs at once. However, if you want to receive monthly income, then set it as a monthly payment plan. With this option, you get paid every month to cater to your monthly bills.