If you are interested in retiring comfortably, you need to find a way to increase your available cash. Doing so will help you pay medical expenses, utilities and other essentials. It can also help you fund fun retirement experiences, such as vacation trips. One way to come up with the money you need to make up for the income loss that comes with retirement is to apply for a reverse mortgage.
Reverse Mortgages Versus Government HECMs
The first thing you need to know about a reverse mortgage is you can obtain one from a private reverse mortgage lender or a government agency. The biggest difference between private and government reverse loans is government versions are typically called home equity conversion mortgages (HECMs). Also, they are government-insured. While private reverse loans are not government-insured, they are still governed by certain federal laws.
How Government Laws Effect What You Can Borrow with a Reverse Mortgage
The most important government law to understand relating to reverse mortgages is you cannot borrow the full total of your available home equity. A reverse mortgage calculator must be used to figure out what amount of the equity will be available to you. That law is in place to protect lenders from loaning too much money. The law can also serve to help you from borrowing too much. When you use a reverse loan calculator tool, it will take into account the current laws and market values. Then it will let you know exactly how much money the reverse mortgage lender can give you.
Why a Reverse Mortgage Makes More Sense During Retirement
Reverse mortgage terms are not like those for standard home loans. A typical home mortgage involves borrowing a large sum from a lender and immediately starting to pay it back in small bits. If you miss any of those scheduled payments, you may lose your home. A reverse mortgage allows you to continuously collect money from the lender in monthly installments, until you borrow the maximum amount. You do not have to pay the balance back totally until you leave your home. With no scheduled payments, it is impossible to default by missing any.
In fact, not only can you not be evicted for lack of payment when you have a reverse mortgage, but leaving your home is highly discouraged. As long as you stay in it, the loan will stay active. As soon as you leave, the remainder of what you owe becomes due. Therefore, you can extend your reverse mortgage terms for as long as you want by simply staying put.
When You Can Lose Your Home
When you apply for a reverse mortgage, an understanding is reached with the lender that you are capable of retaining home ownership. You are left in charge of paying the taxes on the property and other maintenance fees. If you are ever unable to pay your property taxes or have to file for bankruptcy, you can be evicted. If you ever lose your home for unrelated reasons, such as moving into an assisted living facility for medical reasons, the home may also be sold, if you cannot pay your loan balance at that time.
Additional Reverse Mortgage Borrowing Options to Think About
The most common way to borrow reverse mortgage money is in monthly installments, but you do not have to set up your payments that way. Depending on your personal situation, requesting one large payment may make more sense. For example, a single payment can help you pay for an expensive medical procedure. Alternatively, you may prefer to set up a reverse mortgage so you can borrow money when you need it only. That is called a line of credit.