You might remember a few years back when I posted about us purchasing our dream retirement home. We loved that house, and we really thought that we would live there forever after my husband retired the following year. For several reasons, we unfortunately had to sell that house, but we bought a beautiful house in Central Oregon after my husband did retire. Awesome, right? Absolutely! To have fun during retirement, you need a decent income. Although we make a decent income, we have found that paying our own health insurance is SO expensive, and that the state income taxes here are incredibly high. We have learned that you DEFINITELY need a decent retirement income to even maintain your home, as well as to pay unexpected emergency expenses. If you’ve always wondered, “What the heck is a reverse mortgage?”, you will find some answers below.
If you have taken a huge reduction in income after retirement, you might find yourself seeking other sources of ready cash. There are several options to investigate, of course, and a reverse mortgage is definitely one source worth looking into. Many people aren’t very familiar with them (I sure wasn’t!), but after researching a bit, here are the basics:
Reverse Mortgage Basic Facts and Benefits
A reverse mortgage is essentially a mortgage that provides you with money you can spend but does not require you to repay that money, at least not soon after you borrow it. The money is considered yours to do with as you wish for as long as you own and live in your home. That is because you are essentially spending your own financial asset.
The most basic and prominent benefits of a reverse mortgage is it does not come with mortgage payments you have to make all the time. Therefore, you do not have to worry about the addition of another scheduled bill. You can enjoy total and immediate financial relief.
Reverse Mortgage Closing Costs and Fees
Like a traditional mortgage or any type of loan you might get from a lender, a reverse mortgage has closing costs and fees associated with it. However, those reverse-loans costs can easily vary between lenders and locations. You’ll definitely want to check them carefully and thoroughly to find the lowest costs possible. Once those costs and fees are established, they are often deducted off the top from the total amount doled out to you.
Reverse Mortgage Total Value Calculation Information
A reverse mortgage allows you to borrow some of the total current value of your home, but you cannot access all of it. A special tool called a reverse mortgage calculator is used to determine what is available to you. The reverse loan calculator takes into account current lending laws set at the federal level. The tool is also used to figure out how much money you can receive at a time, if you are requesting ongoing installments.
The total value of your home at the time of reverse mortgage application is not always completely obvious. For example, if you already have a traditional mortgage the total you can borrow with a reverse mortgage will definitely be affected. Additionally, you will not be able to freely spend the total established by the reverse mortgage calculator. A portion must be used to repay the traditional loan balance, first.
Exploring the Various Reverse Mortgage Sources
Another thing to understand about reverse mortgages is they have several sources. They are offered by banking chains with nationwide reach. They are also offered by smaller local banks. Additionally, some federal agencies offer versions of them called home equity conversion mortgages. Those HECMs are quite similar but subject to more federal rules. At the same time, they offer an added level of protection because they are insured by the federal government.
If you have special reverse mortgage needs, you might need to take extra time to find a source that fits. For example, if your home has an extremely high value, a jumbo loan might be in order. Only some institutions offer jumbo loans, which have higher borrowing caps than regular reverse mortgages.
Signing Your Reverse Mortgage Contract
No matter where you get a reverse mortgage, the process is similar. Once you sign the contract, there is no going back. So, be sure you research all of the above options carefully before deciding where to get your loan, as well as how you want to receive your funds. That way, you will be completely comfortable with your decision.
So there you have it. not you won’t have to wonder what the heck is a reverse mortgage anymore.
I would also suggest, that before you make any big financial decisions (especially programs/investments/loans you are not too familiar with), you consult with a trusted financial planner, accountant or whomever does your taxes to see what is the most beneficial option for you and your situation.