Reverse Mortgages: How Do They Work?

If you’re approaching the age of 62 or already over 62, the chances are you’re thinking of retiring. You may have a lot of fun plans now that you have extra free time. Alternatively, you may just be trying to figure out how to maintain your pre-retirement lifestyle. In either case, additional funds can be a huge help. One way to get those funds is with a reverse mortgage. This new applicant guide can help you understand what to expect when you try to obtain one.

Reverse Mortgages Vs. Standard Home Mortgages

The first thing you may wonder about applying for a reverse mortgage is why you should get one. What makes it different from a standard home mortgage. There are a few major differences. One is that a reverse mortgage is only available when you are at least 62 years of age. It is known as a retirement loan. Another is a standard loan must be repaid in increments at set times and paid in full by a particular date.

A reverse mortgage can last for almost any length of time. The loan period is determined by how long you use the home as your primary residence. As soon as you move out, the balance is owed. That means it is ideal when your intention is to live in your current home throughout your retirement years. As long as you do not leave, you can spend the funds without fear of needing to pay them back quickly.

Reverse Mortgages Vs. Home Equity Conversion Mortgages (HECMs)

A term you may here frequently in the reverse mortgage world is “home equity conversion mortgage,” or “HECM.” There is no major difference between an HECM and a reverse loan offered by a public lending institution. The only change is an HECM is issued by the federal government. Therefore, it is also insured by the federal government. Non-government reverse mortgages are somewhat government regulated but not fully government insured.

Figuring Out How Much Money a Reverse Mortgage Lets You Borrow

One government regulation that applies to regular reverse mortgages and HECMs is there is a limit to how much of the value of your home you can borrow. The government places those limits to help protect your interests and the interests of reverse mortgage lenders. To figure out exactly how much you can borrow while taking those limits into account, you need the help of a reverse mortgage calculator tool. The tool can tell you and your lender exactly what portion of your home value is open for borrowing.

Qualifications for Reverse Mortgages

There are many qualifications you must meet to get a reverse mortgage. Simply calculating the value of any home with a reverse mortgage calculator and getting a loan automatically is not an option. The home must also be your primary residence. You cannot request a reverse loan on a vacation home or other property you own but do not live on. Additionally, if the property has multiple apartments, you must live in one of them.

Since the terms of a reverse mortgage require you to keep living in your home while the loan is active, you retain home ownership. That can be beneficial because you do not have the fear of eviction that comes with missing a standard loan payment. Reverse mortgages have no specific repayment schedules. However, you must prove to the lender that you have the means to care for and maintain the home to qualify for the reverse loan. For that reason, you may be required to pass a credit check or provide other financial information.

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