When you are planning to retire or already retired, there is one major obstacle to overcome. That obstacle is money, or more to the point lack of money. When your income drops as a result of hanging up your work attire permanently, you need a way to get some cash flowing in again. As a homeowner, you have one obvious option. You can take out a home mortgage. What you might not know is your mortgage options expand to include reverse mortgages when you reach age 62.
The Basics of the Reverse Mortgage Solution
A reverse mortgage can best be summed up as a mortgage that pays you. Instead of receiving ongoing mortgage bills, you pay the money back when you can. In fact, sometimes you can receive reverse mortgage money as often as you would be paying it back with a traditional mortgage. Although, that depends on how you choose to receive your reverse mortgage funds.
Receiving Reverse Mortgage Money from a Lender
There are three basic ways to receive reverse mortgage money, or you can opt for some combination of those options. They are by credit you borrow from as needed, as a one-time large payment or in monthly amounts doled out to you by particular dates each month. If you are not sure which to choose, counseling for a reverse loan might be in order. The reverse loan counselor can go over your borrowing options with you. He or she can also advise you about many other parts of the process of applying for a reverse mortgage.
Getting a Home Equity Conversion Home Mortgage
Within the “reverse mortgage” category, you have a couple choices. One is to get a home equity conversion mortgage (HECM). The government issues HECMs through their agencies. One of those agencies is the Department of Housing and Urban Development. It is otherwise known as HUD. When you apply for a federal HECM, you must adhere to all rules set forth by that agency. You can be assured of proper regulation and avoid potential reverse mortgage scams. The loan is also subject to being government-insured.
Getting a Proprietary Bank Home Loan
A proprietary bank home loan is considered a regular reverse mortgage. That is one not issued at the federal level. Instead, you can get it at a local bank or credit union. However, there are also some fraudulent reverse mortgage offers that seem official. Therefore, you need to take care to select a legitimate proprietary lender, if you make that choice.
Proprietary lenders must adhere to some rules set by the federal government. However, they are not subject to the exact same rules as one another. Each banking institution creates its own loan terms, aside from the federal lending cap and related rules they must follow. Therefore, reading the fine print of your contract before you sign it is necessary.
Rules for Repayment of a Reverse Mortgage
The rules relating to repayment of a reverse mortgage can vary slightly between lenders. However, the basic rule is you must keep living in your house. As soon as you move elsewhere, the lender can call in the loan. Then you only have a short time to repay the full balance or the home is sold.
Summing Up Your Reverse Mortgage Benefits
Choosing between a traditional or a reverse mortgage boils down to what you need and when you need it. If you want money you can spend without worry and without an extra bill for many years, a reverse mortgage may help. However, you also have to consider other aspects of your situation, such as whether you want to stay where you are for many years or not. If so, it might be the perfect way to ease the worries you have about having enough money for a comfortable retirement.
This is a contributed post and therefore may not reflect the views and opinions of this blog or its author.