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A Reverse Mortgage Retirement Primer

Taking out a traditional mortgage on your home might hurt you more than it helps you when you retire. You have to consistently make payments toward the mortgage balance, which means you have an extra ongoing bill to pay. A reverse mortgage works in a different way and is specifically designed to ease retirement-related financial worries. This is how it works.

The Reverse Mortgage Repayment System Difference

The first thing to know about a reverse mortgage is the repayment system is vastly different from that of a standard home mortgage. Rather than you being issued ongoing mortgage bills to pay, you have financial freedom for many years. No repayment is immediately necessary.

Since you do not have to repay any part of a reverse mortgage right away, you may be wondering when you do have to pay it back. The answer is whenever you want to, as long as you do not violate the terms of the agreement. Those terms are established when you sign the loan paperwork. For example, all reverse mortgages require the home to be the main residence of the applicant. The applicant must also agree to stay in the home for as long as the loan agreement exists.

Stipulations Regarding Spending Your Reverse Mortgage Money

Very few stipulations exist regarding how you can spend your reverse mortgage money. Typically, reverse loan rates are established and then money is doled out to you. Then you can use it for anything you want. Possible purposes might range from padding an emergency fund to going on vacation. You could also use the money for everyday needs like payment of monthly bills.

The Major Exception to That Rule

The major exception to the rule that you can spend your money as you see fit occurs if you already have a standard mortgage when you apply for a reverse mortgage. Having the former does not prevent you from qualifying for the latter. However, you cannot keep both agreements active at the same time on a long-term basis. You must pay the first mortgage balance owed in full before spending the remaining reverse mortgage funds as you please.

Applying for Government Created Reverse Mortgages

When looking into reverse mortgage sources, you can find them offered by local lenders. However, they are also frequently provided by government agencies. If you approach a government agency to apply for a reverse mortgage, you may find it is referred to as a “home equity conversion mortgage.” The abbreviation for a home equity conversion mortgage is “HECM.” It is very much like a reverse mortgage, but it is insured federally.

How to Make Sure You Can Get a Reverse Mortgage

If you are at least 62, you can almost certainly qualify for some type of reverse mortgage. The requirements are not particularly lengthy. However, you do have to own the home. You also have to live in it on a full-time basis. When you apply, you may also need to undergo a credit check. That helps to ensure you can afford to pay taxes and other fees associated with continuing to own the home for as long as the loan lasts.

Making Your Reverse Mortgage Fit You

If you do apply for a reverse mortgage, make sure it fits you. Specifically, set up the terms by which you will receive funds to supply you with the most benefits. For example, if you need help paying regular bills you might want to receive ongoing smaller checks. However, if you have a large medical bill to cover, a one-time large payment might help you more. A line of credit is a third option and the most flexible choice.

The Final Reverse Mortgage Analysis

What the decision to get a reverse mortgage or not comes down to is your personal situation. The biggest decision to make is how long you want to stay in the home. If you have no plans to move, a reverse mortgage might be ideal for you. You also need to have a plan for eventual repayment or be willing to let the home be sold, as opposed to keeping it in your family.

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