You may be looking forward to retirement or already retired. Or (most likely) you just want to get a head-start on your financial planning. It’s never too early!
If you are a homeowner and at least 62 years of age, you can also look forward to access to a reverse mortgage. A reverse mortgage is a way to get more money to offset the loss of a regular paycheck when you stop working. It helps you use the value (equity) of your home to your advantage. Here are some need-to-know facts about the reverse mortgage application process.
Reasons to Participate in the Reverse Mortgage Application Process
You are probably wondering why you should apply for a reverse mortgage as opposed to a standard mortgage on your home. There are a few good reasons. One is there are no mortgage payments to make at scheduled times. Therefore, you cannot face eviction for a late payment. A reverse mortgage allows you to pay back what you owe at your own pace. Another is you continue to be the owner of the property. In fact, if you want to keep the reverse mortgage agreement valid, you are obligated to stay in the home.
Figuring Out if You Can Get a Reverse Mortgage on a Specific Home
Owning property is not enough to allow you to qualify for a reverse mortgage. The home in question must be the home you use as your main residence. Vacation homes do not qualify. Neither do large apartment complexes. However, if you own a building with a few apartments you may qualify, as long as one apartment is yours.
You also have to make sure your home is worth enough to warrant taking out a reverse mortgage on it. A reverse mortgage calculator can help you figure that out. The tool is used by your lender. It helps the lender assess multiple aspects of your home, including how well it is kept up and how old it is. Another reason for the reverse mortgage calculator is you cannot borrow the full value of the home. You need the calculation to help you know what amount you can borrow. That is because there are federal limitations in place and guidelines your lender must follow when setting up the loan.
Reverse Mortgage Lender Selection Tips to Follow
If you want a reverse loan, you need to select a reputable reverse mortgage lender. One option is to consider large banks such as Bank of America that have clearly established reputations for excellence. You can also opt to get a reverse mortgage from a small local credit union or bank, but it may not come with as much security. Although, all loans are government-regulated. Some reverse loans are also offered directly through federal organizations and insured by the U.S. government.
Other Reverse Mortgage Eligibility Factors to Consider
When applying for a reverse mortgage, you should be aware of a few other eligibility factors. For example, your spouse can co-sign the loan agreement. However, he or she must be 62 years of age or older to do so. Also, you cannot obtain a reverse mortgage while a standard mortgage exists on your home unless you are willing to immediately pay the standard loan in full using funding received through the reverse loan.
The Long-Term Impact of a Reverse Mortgage
A reverse mortgage can give you financial freedom during retirement, but there are some long-term considerations. One is the loan comes due as soon as you no longer live on the property. If you fail to pay it, the home is sold. Family members cannot continue living there unless they pay the loan balance. Also, a reverse mortgage accumulates interest. Since the loan can last for many years, those charges can get quite high.
