When you retire, you may find yourself suddenly financially strapped. Going from weekly or every other week paychecks to a small monthly retirement income is a major change. It could be one you cannot overcome without extra financial assistance. You can get that assistance by taking out a reverse mortgage on your home.
Why Should You Not Apply for a Traditional Mortgage?
You might wonder why a traditional mortgage is not the answer to your cash flow problems during retirement. The answer is simple. It comes with the need for you to make consistent mortgage payments. Receiving a mortgage bill on top of your other expenses is not a way to eliminate financial strain when you retire. It can actually create more problems than it fixes.
How Might a Reverse Mortgage be Better?
A reverse mortgage is designed differently from a traditional mortgage. When comparing reverse-mortgages cons and pros, the biggest pro to note is a reverse mortgage does not come with a mortgage payment you have to make according to a particular schedule. In fact, you are discouraged from making early repayment of any portion of the loan. You can take many years to pay the reverse mortgage balance, if you want. Conversely, a traditional mortgage typically must be repaid in five years or less, though there are some exceptions.
When Can You Receive Reverse Mortgage Money?
There are two times you can potentially receive reverse mortgage money. One option is each month. The total balance available is calculated. Then that balance is divided into equal parts. You receive monthly payments of those equal amounts until all payments are made. That can be handy when your main concern is paying predictable monthly bills, such as your phone or electricity bills.
Another way to receive reverse mortgage funds is whenever you actually need them for something specific. You can do that by requesting a single lump sum when you have a specific financial emergency. Alternatively, you can draw from your home equity multiple times but only when you need to. Do so by requesting to set up a home equity line of credit.
How Can You Spend Reverse Mortgage Money?
In general, you can spend reverse mortgage money any way you need or want to, once it is in your possession. However, there are some initial regulations you need to know. For example, fees like closing costs are deducted from what you can borrow, so you may receive less than you think you will at first. Also, you are obligated to pay a traditional mortgage in full using your reverse mortgage money, assuming you have a traditional mortgage. Only then can you freely spend whatever reverse mortgage funds are left.
When Must You Repay Your Reverse Mortgage?
A traditional mortgage has a specific date by which it must be repaid. A reverse mortgage does not, but you are obligated to keep living in the home for as long as you wish to keep the loan agreement intact. Once you move out, the balance is called in. At that time, if you find yourself unable or unwilling to pay it, you must agree to the sale of the home.
How Can You Ultimately Decide if You Should Get a Reverse Mortgage?
Now that you understand reverse mortgages more, you might still struggle with how to decide if you should get one. To do that, you have to do a little research. First, determine how much you could borrow if you did apply for one. If that amount is high enough, the process may be worth it to you. It can also be beneficial to talk to a reverse mortgage specialist. He or she can enlighten you about every detail of the process so you feel fully prepared to apply.
