Things to Know Prior to Obtaining a Reverse Mortgage

If you own your own home, you may be considering taking out a mortgage on it. However, a traditional mortgage may not be right for you, especially if you are 62 or older. Once you reach retirement age, your income is likely to be lower than it used to be. Therefore, you may have difficulty taking on the extra burden of a regularly scheduled mortgage payment. An alternative available to retirees or those of retirement age is a reverse mortgage. Here’s what you should know prior to obtaining one.

A Reverse Mortgage Can Pay You Continuously

If you so choose, you can be paid by a reverse mortgage. In other words, your reverse mortgage lender will give you monthly payments. Therefore, it will be similar to replacing a portion of the regular paychecks you were receiving when you were working. The advantage of taking out a reverse loan and getting those payments is you will be able to cover monthly bills after you retire. However, you can only borrow up to a certain amount. When you reach that limit, the payments will stop.

A Reverse Mortgage Can Also Pay You in Other Ways

When obtaining a reverse mortgage, you do not have to request monthly equal payments. You can opt to be paid in other ways. For example, you may choose to start a home equity line of credit. If you do so, you will be able to get funds from your reverse mortgage lender when you need them, similarly to using a credit card for select purchases. Alternatively, you can request one large reverse mortgage payment. That might help you cover a major unexpected home repair, medical or other expense.

How Much You Can Get from a Reverse Mortgage

One thing you may be wondering about is how much you can get from a reverse mortgage in total. There is no simple answer you can determine on your own. Your lender will have to use a reverse mortgage calculator to figure it out. The final terms of the loan will be set based on the results.

The purpose of such a tool is to calculate the equity of your home by comparing many different factors. Also, the amount determined by a reverse mortgage calculator must take government caps on percentages that can be borrowed into account. The total value of your home may be influenced by the economic state of the area and the condition of the home itself, among other factors. Your lender will let you know how much you can borrow after making all of those calculations.

When Repayment of Reverse Mortgage Funds is Required

The short answer to when you have to pay a reverse mortgage back is it depends on your goals. The total loan balance will not be due until you move out of the home. At that time, you can opt to not pay the loan balance at all. However, if you do so, the home will be sold. If you want to pass the home on to a family member or friend, you must pay the balance within a short time after vacating the property or before you leave it. Also, be aware reverse loan balances can get quite high because interest will continue to accumulate during each of the years you live in the home after the agreement is signed.

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