When you retire, there are a lot of things to enjoy. But one thing you may not enjoy is having a severe reduction in income. When you need more retirement money, a traditional mortgage might be your first thought. However, getting one means paying an ongoing mortgage bill. A reverse mortgage is a good alternative, but before you apply you need to understand the language of reverse mortgage application.
What a retirement only mortgage is...
A reverse mortgage is sometimes called a retirement mortgage or a retiree-only mortgage. That is because you can only get it if you are at least 62 years of age. It is a mortgage designed to give you the most living security during retirement without increasing your monthly financial stress. It does so by providing you with funds out of your home value to spend free and clear for as long as your home stays your main residence. Since that could be several years, that means you can be financially freer during retirement.
Why is it referred to as 'reverse'...
A reverse mortgage is referred to as “reverse” for one simple reason. It pays you instead of you paying it. If you select to receive regularly scheduled payments, it can simulate the income you lose from working, at least for as long as funds last. Since you do not have to repay portions of it early on like you do with a traditional loan, the cash flows in the one direction, to you.
So what is a reverse mortgage calculation tool?
It is not as easy as it sounds to figure out how much you can borrow with a reverse mortgage. It requires the help of a reverse mortgage calculator. The purpose of a reverse mortgage funds calculator is to access your total home value and then apply specific formulas to figure out how much of that value you can legally and safely borrow. Those calculations are necessary due to government lending limitations and other rules.
Figuring out how much you can borrow is only one issue when dealing with a reverse mortgage. Knowing what the reverse mortgage calculator says you can borrow is essential. But another issue you have to deal with is choosing between a regular reverse mortgage and an HECM after the reverse mortgage. An HECM is a home equity conversion mortgage. It is essentially the same as a reverse mortgage, except it is offered through a government agency and is thus protected and insured by the government.
Deciding if you want a home equity line of credit...
The term “home equity line of credit” is one commonly associated with reverse mortgages. It simply means an account set up like a credit card. It allows you to borrow from your home equity when and how you want or need. The two common alternative ways to receive your money are in planned equal ongoing payments or as a single up front large payment. Deciding if you want to set up the line of credit is up to you. It depends on your current retirement needs and any future financial issues you anticipate.
How a loan period relates to a reverse mortgage...
In the world of reverse mortgages, the loan period is not as much of a concern as it is in the world of traditional mortgages. That is because a traditional mortgage has a set loan period, or period of time in which the loan must be repaid by you. A reverse mortgage is only fully due whenever you stop living on your property. Therefore, the loan period is not defined when you first sign the loan agreement.
As you can see, the language of reverse mortgages is not always straightforward and easy to understand. That is why it may benefit you to talk to a reverse mortgage advisor. He or she can help you decode the language. Once you clearly know the meaning of everything in a reverse mortgage contract, you can sign it with confidence.
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