If you are at least 62 years of age and a homeowner, you may qualify to take out a reverse mortgage on your main residence. However, before you run right out and apply for one, you should know exactly how the process of getting a reverse loan works. It is especially important to understand the difference between a retirement loan of that sort and a conventional home mortgage that can be taken out at any age. Here’s the information you need to know before you decide if you should apply for one or not.
Requirements for Getting a Reverse Mortgage
There are several requirements you must meet to get a reverse mortgage. First, you must be 62 years old or older. Also, you must be a homeowner and be applying for a mortgage for the home you live in primarily. That home must also have enough equity (current value) to make getting a reverse loan worthwhile. A reverse mortgage calculator tool can be used to determine if your home qualifies.Photo by Andrea Portillia
When you apply for a reverse mortgage you must also meet certain personal standards. Unlike a standard loan, a reverse mortgage lender will provide you with money at regular ongoing intervals, unless you ask for other terms. In the meantime, you will continue to own the home, and you cannot be evicted from it. Therefore, you must be able to prove you can afford the cost of taxes and other expenses related to home ownership. A credit check may also be run by your lender to determine your eligibility.
Determining the Size of a Reverse Mortgage
One thing you need to know about getting a reverse mortgage is that there are lots of things that can influence the size of it. In other words, the amount you can borrow is not going to be the amount you may expect initially. A reverse mortgage calculator must be used to figure out the amount that can be borrowed. That is because the government has set standards governing how much reverse-loan lenders can loan. Only a percentage of the current home equity can be borrowed, and factors like the age and current condition of the home can impact the total equity.
Ways to Borrow the Reverse Mortgage Money
One of the biggest problems with having less money during retirement is likely to be difficulty paying monthly bills. Therefore, you may prefer to borrow your reverse loan money using a monthly system where you receive set amounts each month to use to pay those bills. However, you do have three other options. One is to request a large lump sum, which may be useful if you have a one-time expense like a medical bill. Another is to set up a line of credit so you can draw money from your home equity whenever you need it. Finally, you can choose some combination of those methods, if need be.
When You Have to Return the Borrowed Reverse Loan Money
When you borrow money by getting a conventional mortgage, you must start paying it back almost right away in recurring payments. However, a reverse loan does not work that way. That type of mortgage encourages you to wait for a long time before you pay any money back. There is no payment schedule. For as long as you stay in the home, the balance will not be due. Therefore, you may have a reverse mortgage for any number of years. However, the disadvantage of that is it will keep accumulating interest. Also, the sale of the home may be necessary when you leave it, if you are incapable of repaying the full loan balance at that time.