Retirement is supposed to be a time when you can relax and enjoy your life, but if you find yourself financially challenged at this time, it can be difficult. A reverse mortgage is a popular solution to bring about financial relief when a regular mortgage is not an option. But before you enter anything big, make sure that you understand all the terminology surrounding this solution. Here are some concepts to familiarize yourself with.
Before things get too technical, let’s discuss what a reverse mortgage actually means. With a regular home loan, you would be expected to pay money towards it every month. A reverse home loan acts as the reverse of that, as you can receive a monthly amount from your loan once it has been granted. It is a long-term loan that gives you access to money from your home’s value, for as long as you choose to live in it.
HECM
This is an acronym for “home equity conversion mortgage”. It is referred to by this term if the loan is issued by a government agency, instead of a private lender, like a bank. The only difference between this and a reverse mortgage, is that the HECM comes with government insurance.
Reverse mortgage calculator
This is a useful tool that is used by lenders to calculate the overall value of your home before granting you a loan. The calculator is designed to take all the factors about your home into account, such as its age, condition and where it is located. Because federal law prevents you from borrowing the full value of your home equity, this calculator will help to determine what percentage you are eligible for. If a regular mortgage is already attached to the home, it will negatively affect its equity, but it won’t make it impossible for you to get a reverse home loan. Bear in mind though, that if you still have an outstanding amount on your conventional home loan, that amount will have to be settled using funds from the reverse home loan, once it is granted, before you will have access to the balance of the funding.
A reverse home loan is useful, as you can use the money much like you would use a credit card. The lender will determine how much money you will be eligible for, and you will then be able to access that money in small amounts as you need it.
Taking possession of the funds as a line of credit is only one of a few ways that you can get your hands on the funding available in your account. The other ways are to opt for a single bulk payment, where the entire amount is paid over in one go. The other option is to go for equal-weighted monthly payments, much like a salary would have been before retirement. This option makes expenditure predictable, based on how much money you know you will have in a month, but you should be aware of and when these payments will stop. Careful budgeting will be required for this option.
Photo by Tierra Mallorca on Unsplash