If you are retired, or at least 62 years of age or older, you may qualify for a special type of home loan. It is called a reverse mortgage, if it offered by a private company. The government version is known as a home equity conversion mortgage, or HECM. A reverse mortgage is very different from a traditional loan. Those differences make reverse loans ideal for retirees like you. Here is how a reverse mortgage can assist you during retirement.

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You Get Money Instead of Owing It Right Away

When you take out a standard mortgage on your home, you have to start paying part of it back nearly right away. Your ongoing mortgage payments will be additional bills you have to worry about and keep you from enjoying your retirements as much as you otherwise might. However, when you get a reverse mortgage you can set up the loan agreement so you actually receive money monthly and do not owe it back for a long time. The long-term nature of the loan will allow you to enjoy your retirement. It’s important to note that there are different types of reverse mortgages, so it’s worth researching and understanding what are the 3 types of reverse mortgages available to you.

You Can Use Part Your Home Equity to Your Advantage

One of the best reasons to get a HECM or reverse loan, is to use your home equity to your advantage while you can. At least, part of it. You must use a reverse mortgage calculator to figure out how much. That is because there are regulations in place preventing you from borrowing the full home value. Once the reverse mortgage calculator figures the total amount out, it can be paid out to you in ongoing payments to help you enjoy retirement. With a traditional loan, your equity will not work to your advantage as much because you have to pay it back quickly.

Closing Costs and Fees Come Off the Top

Reverse mortgages do not have hidden fees, typically. The reverse mortgage lender will charge fees and closing costs. However, those amounts will not be charged after the fact. They will be taken off the top. In other words, they will be deducted from the total amount you can borrow. But be aware that any existing mortgage you already have must also be paid immediately when you get a reverse loan. Your reverse mortgage lender will deduct those funds right away as well.

You Will Have Fewer Default Risks

Another way a reverse mortgage can help you when you retire is you will have fewer default risks. When you get a standard loan, the bank can evict you and seize your property when you miss payments. However, a reverse loan actually requires you to live in the home on an ongoing basis. Moving out is what triggers the full balance to become due. Therefore, your lender cannot and will not kick you out.

Additionally, you cannot miss scheduled monthly reverse mortgage payments as you can traditional loan payments because scheduled reverse loan payments do not exist. The long-term loan agreement encourages you to wait a long time to pay off any portion of the loan. Without payments to miss, you cannot default. The main requirements to avoid defaulting on a reverse mortgage are continued residency in your home and continuously paying the taxes and other upkeep costs for the property.

You Will Have Financial Control During Retirement

A reverse mortgage is also beneficial because it offers you financial control during retirement. For example, you can choose how you borrow the money. Ongoing monthly payments is a popular option because borrowing that way can help you pay monthly living expenses. However, you can also create a line of credit to borrow against as needed or request a large single payment to cover a major expense. You also have total control regarding how you spend the borrowed money. It can be used to fund enjoyable items or events like vacations, not just bill payments.

* This is a pre-written collaborative post

1 Comment

  1. I love your blog! However, with this post, there are so many concerns. Any time a reverse mortgage is mentioned It scares me. People in retirement, if they are needing extra money or think that this is a good way to have additional disposable funds, be cautious.

    The concern here is one doesn’t know how long they are going to live.

    * A reverse mortgage is borrowing against the equity in their home. Keep in mind, If they outlive those payments or need to go into assisted living, costing them even more money out of their pocket plus the repayment of the reverse mortgage (” a reverse loan actually requires you to live in the home on an ongoing basis. Moving out is what triggers the full balance to become due”).

    * “You actually receive money monthly and do not owe it back for a long time.” The “long time” is what worries me…will it be the homeowner that took out the reverse mortgage that will be responsible because they outlived their payments or the next of kin (leaving it to hopefully break even in the estate)?

    If a parent or grandparent mention this to you, borrower beware. Educate yourself on the fine print and advise the parent or grandparent properly so all the facts are known.

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