When retirement is looming, your finances may become a bigger concern than ever before. That is understandable, since you are facing the loss of your working income. One way to temporarily supplement your retirement income is to apply for a home mortgage. However, doing so also increases the bills you have to pay by one. What if you could get a mortgage without that extra bill to pay? If you qualify for a reverse mortgage, you can.
What a Reverse Mortgage Does for You
Reverse mortgages have been around for decades. Over the years, they have developed into the perfect retiree home mortgages. In fact, you can only get one if you are at least 62 years of age. A reverse mortgage lets you stay in your home with fewer risks. It also lets you borrow money during retirement without actually having a regular mortgage bill to pay. Instead, you choose when to repay the loan, provided you keep residing in the home.
Reverse Mortgage Versus Traditional Mortgage Loan Periods
A traditional mortgage has something called a loan period, which is the duration of the loan. Often, it is either three or five years. Over the course of that time, payments you have to make are scheduled in such a way that, if you make them on time, you will meet the full repayment requirements by that deadline.
A reverse mortgage still technically has a loan period, but that period is not as well defined. That is because the loan can stay active for as long as you live in the home. Therefore, the loan period could even be a decade or more. It all depends on your plans. The extended loan period of a reverse mortgage coupled with the lack of a regular repayment schedule offers you more flexibility during retirement with fewer risks.
Your Reverse Mortgage and Home Ownership Responsibilities
If you do get a reverse mortgage, you need to be careful. There are some reverse mortgage potential pros and cons you need to think about. One is your continued home ownership. You might view that as a pro because it is harder to get evicted when you have a reverse mortgage, as opposed to a traditional one. However, it can also be a con because you must continue to pay taxes and upkeep costs for the home. Failure to do so could create an entirely new set of problems. If it leads to filing for bankruptcy, your reverse mortgage agreement is violated.
Reverse Mortgage Types to Consider
There are two types of reverse mortgages to consider. Before you get one, make sure you are applying for the right type. Private lending companies offer reverse mortgages that are regulated federally, but they are not insured federally. Government agencies offer federally-insured and federally-regulated reverse mortgages. They are called home equity conversion mortgages (HECMs) and function quite similarly to those offered by private lenders.
When you get a reverse mortgage, it is important to apply through a source you trust. A local bank, for example, might be a good choice. But you should already have a positive history with that bank. If you do not have a history with any local institutions, a government organization might be a better resource for you.
What You Can Do with Your Reverse Mortgage Funds
No matter what type of reverse mortgage you get, you can look forward to a more comfortable retirement. There is practically no limit to what you can do with your reverse mortgage funds. For example, you can use them to pad your monthly income and pay essential bills. You can also use them to set up an emergency fund. Although, drawing from your available reverse mortgage funds using a home equity line of credit instead of receiving monthly installments might be the best way to do so. The funds can even be used for fun purposes, so you will have total financial discretion to do as you please.
Sandy Klocinski says
Reverse mortgages can definitely help cash-strapped retirees generate extra money for living expenses. But there can be an expensive downside: They carry stiff fees, nearly three times as much as those on a traditional mortgage. Upfront fees can exceed 10% of the loan in some cases.
Debbie P says
I see these commercials on tv all of the time. Thanks for the great information.
Sarah L says
I looked into this when I had a mortgage, but instead I just paid mine off.
It is good for people who don’t have many options. One thing I learned is if you are in a condo, the condo association must get approved. Many do not want to do that, and will not go along with it in any way.
Mary Gardner says
Thanks for the information. I always wondered how reverse mortgages worked.