Do you want to replace lost income during retirement? If so, you are not alone. Many retirees have trouble making ends meet. If you own your own home, you do not have to be one of them. Your home might be exactly the source of income you need. A reverse mortgage can help you access that income. Here are some basic components of the reverse mortgage process to consider before signing a loan contract.
You Can Only Get a Reverse Mortgage on Your Primary Home
One thing you must understand about a reverse mortgage is it is tied to the home in question and to you, as the homeowner. Part of the loan agreement is the home must be your main home, not someplace you stay temporarily. You must also own the home, of course. If you choose to leave it while your loan is still active, you have to pay the balance back within a short time frame.
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Some Apartments And Other Buildings Do Qualify For Reverse Mortgages
If you own a home that is divided into apartments, you may still qualify for a reverse mortgage. However, it has to have four or fewer apartments, generally. You must also live in one of those apartments yourself. Certain other homes may also qualify. The important qualifying factors still apply, such as you must reside there and you must own the residence. So do not assume your home does not qualify just because it is unusual. Ask your chosen bank, first.
A Reverse Mortgage Has Fewer Obligations Than a Traditional Home Loan
One reason a reverse mortgage is preferred over a traditional mortgage by many retirees is it comes with fewer financial obligations. For example, there is no established repayment schedule. Nor do you have to worry about making payments soon after you request funds. If you get a traditional home mortgage, both of those issues are factors. That can actually make your retirement more financially difficult.
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A Reverse Mortgage Locks You Into Your Location and Ownership Obligations
There are several factors that go into deciding if a reverse mortgage is a good option in your specific situation. For example, one of the potential reverse mortgage disadvantages is you may be locked into your home ownership obligations and your location for a long time. If you think you may wish to move in the near future, postpone applying for such a mortgage. Even though you can potentially pay it off early, it may not be worth it to bother. A reverse mortgage is primarily meant to help you when you intend to stay in your home throughout your entire retirement.
A Reverse Mortgage and a Traditional Loan Cannot be Maintained Concurrently
Another potential downside of a reverse mortgage is you cannot have one concurrently with a traditional home loan. However, you can apply for it if you have such a loan. If you do so, funds from the second loan are automatically needed to pay the remaining balance on the first. You must decide if there will be enough funds left over once that balance is paid to make a reverse mortgage lucrative for you.
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Fund Collection Options
When you initially sign a reverse mortgage contract, you must select how you want to collect your funds. You can choose a single option or sometimes a combination of options. Those choices include drawing from available funds using a credit line, asking for one large payment of the total you can borrow or setting up ongoing monthly payments.
Other Reverse Mortgage Facts to Consider
Before making your final choice about signing a reverse mortgage contract or not, you have to think about certain other facts. For example, you are not obligated to ever pay your reverse mortgage back, but if you do not by the time you leave the property your home is sold to recover those lost funds. You can also risk losing your home if you fail to pay your taxes or make a bankruptcy claim. So think carefully before you sign a contract and talk to an expert to make sure you fully understand the loan terms.
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