How a Reverse Mortgage can Benefit You

Retirement can be bittersweet for some. Yes, you may be missing a steady paycheck and growing older, however, you will also gain more time to do things that you haven't had time to do. Whether it's taking a vacation, renovating your home, or taking up a new hobby, you may need some extra cash to make this happen. One way to achieve this is by taking out a reverse mortgage loan. I will help you better understand the process and see if it is something that can benefit you.

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Applying for the Right Reverse Mortgage

​ Before applying for a reverse mortgage loan, it is important to know that you have options of who to apply with. A standard reverse mortgage loan issued from a private lender is regulated by the government but is not government-insured. To obtain a reverse mortgage loan that is insured by the government, you need to apply with HUD (Department of Housing and Urban Development) or other federal agencies.

How Much You Can Borrow

With any type of reverse mortgage loan, you cannot get the entire amount of equity in the home. To determine how much you will get, the lender will use a reverse mortgage calculator. This calculator will factor in your information and all the aspects of the reverse mortgage and tell you what you qualify for. These indicators include federal caps placed on the percentage you can borrow, the age of your home and the location of your home.

How You Can Get Your Funds

Once you are approved for a reverse mortgage loan, you will need to decide how you prefer to get your money. (1) You can opt for a lump sum payment to get it all at once. (2) You can choose to have it paid to you in monthly payments. (3) You can also choose to have a line of credit which is a specific amount of money that you can draw from at any time you need it. (4) Finally, there is a combination method. This is when you can use any of the methods together. For instance, you can have some of the money issued in a lump sum and the remainder issued in monthly payments if you prefer.

Who Can Apply for a Reverse Mortgage Loan

The requirements for who can apply for a reverse mortgage loan is pretty straight forward. Since it is directed toward retirees, you must be age 62 or older. If you have a spouse on the loan as well, they will also have to be at least 62. Your home must also meet the requirements necessary to secure the loan. In regard to your home, it must be your main residence. It cannot be a vacation home or rental property. It must also have a sufficient amount of equity available to borrow from.

You must agree to continue living in the home. If not, then the loan will be terminated, and the balance will become due. If you can't afford to pay the balance of the loan, the lender will then take control of the home, sell it and if there is any profit owed to you, you will be paid that amount.

Other Important Information

Just like conventional mortgage loans, reverse mortgage loans have closing costs and fees affiliated with them. These fees can be added to the amount you borrow at the beginning of the loan and are not due and payable upfront.

Even though you cannot have more than one mortgage at a time, you can take the money that you get from a reverse mortgage loan and pay off an existing conventional mortgage loan. This can be strategic by eliminating a monthly mortgage payment.