Reverse Mortgage Application Details

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Reverse Mortgage

Do you have concerns about financially affording your retirement? A home loan might be the answer, but not a traditional mortgage. That will only add to your ongoing bills. Instead, consider a retiree-only loan called a reverse mortgage. It is set up specifically to help with retirement by providing you with readily available funds without the constraints of a standard home mortgage. It uses the equity you have gained from your home to pay you monthly or in a large sum after the reverse loan is complete. Below are more important reverse mortgage application details.

Reverse Mortgage

Why You Need a Reverse Mortgage

You might wonder why you need a reverse mortgage, as opposed to a traditional loan. The main reason is you have to pay back a traditional home mortgage on a particular ongoing schedule. There is no such requirement with a reverse mortgage. It can let you spend part of your home equity on essentials or even items you enjoy during retirement with no short-term consequences or extra bills at all. In fact, depending on the terms you choose, your lender can provide you with money each month, rather than the other way around.

Types of Reverse Mortgages Available to You

There are two types of reverse mortgages available to you, if you are 62 or older. One is provided by a private lender, such as your local credit union or bank. The other is provided by a government agency, such as the Department of Housing and Urban Development (HUD). A government-offered reverse mortgage is usually referred to as a home equity conversion mortgage (HECM) and is insured by the government. Any other reverse mortgage is subject to federal laws, but it is not necessarily government-insured.

Calculating the Reverse Mortgage Borrowing Amount

There is only one way to calculate how much money you can borrow with a reverse mortgage. You must use a reverse mortgage calculator. That is because there are so many factors that go into determining the available funds, including federal laws. The reverse mortgage calculation tool figures out exactly what portion of the total home value you can have converted to cash. Then you and your lender can set up the specific terms of your reverse mortgage agreement.

Potential Reverse Mortgage Borrowing Amount Deductions

Just because you know the total available to borrow does not mean that is the amount you will receive. After a reverse mortgage calculator figures out the available funds, some money may be deducted. For example, fees you must pay when setting up the loan are usually taken out before payments are issued to you. If you already have a traditional mortgage on the property, the amount needed for you to pay that balance in full is also deducted up front.

Reverse Mortgage Borrowing and Payment Flexibility

One of the advantages of a reverse mortgage is borrowing flexibility. Monthly payments from your lender is just one way to receive the funds you need. You could instead choose to get one big payment of the total amount available. That could be handy when you have to pay medical expenses or any other abnormally large expense. It is also possible you may just want the peace of mind that comes from knowing you can access money when you need it. If so, you can use a reverse mortgage like a credit card by borrowing what you need when you need it. A home equity line of credit can function as an emergency fund or help you pay for fun activities when the mood strikes during retirement, such as vacations. 

Reverse Mortgage Interest and Other Considerations

When applying for a reverse mortgage, you do need to consider the big picture. For example, you are obligated to stay in the home. You cannot move and still maintain the loan agreement. You also do have to pay the balance back eventually. If you cannot, the home can be sold and you will not be able to keep it in your family. If you do want to pay the balance back instead of allowing the sale of the home, you must also consider the fact you will owe a lot of interest by the time the long-term loan is due.

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