Reverse Mortgage Nuances

Reverse Mortgage

If you are approaching retirement, you may find yourself eligible for a retiree home loan. The purpose of the special loan, called a reverse mortgage, is to help you offset the loss of income you will likely experience when you stop working. By padding your income with those funds, you can live a more comfortable retirement lifestyle. However, it is important to know the nuances of a reverse mortgage before you sign on the dotted line.

How Does a Reverse Mortgage Alter Your Monthly Bills?

A reverse mortgage has no impact on your monthly bills in terms of adding to them. That is because it does not have a monthly repayment schedule like a standard home loan does. Instead, it can help you decrease your monthly financial strain by providing you with an ongoing source of cash for a set period of time. You typically will receive monthly installments based on your total available loan amount. Those installments can help you pay for multiple expenses, including monthly utilities.

Are There Alternative Ways to Receive the Money?

The monthly checks you can receive when you have a reverse mortgage may not suit you. You might prefer one large payment you can then spend however you want. There is also an option called a home equity line of credit. It allows you to borrow money in exact amounts you need when you need it. Like a credit card, you have a maximum limit on the total you can borrow.

Do You Retain Home Ownership Responsibilities with a Reverse Mortgage?

There are several things you have to carefully consider before getting a reverse mortgage. One can be both an upside and a downside of a reverse mortgage agreement. That is that you retain home ownership for the duration of the loan. The positive aspect of that is you do not face as much potential for eviction as you would with a traditional loan. The potentially negative aspect is you are responsible for all maintenance on your home for the duration of the loan, including payment of all expenses relating to home ownership.

How Does Reverse Mortgage Repayment Work?

When you take out a traditional mortgage, you are given a specific loan repayment period. You must pay the full balance by the due date. Between when you apply for the loan and the due date, you must also make scheduled repayments of minimum portions of the loan. Missing payments is a constant worry.

A reverse mortgage works differently. The loan repayment period is based on how long you stay in the home. You owe the balance when you cease living there. Therefore, the loan period might be a few years, over a decade or anywhere in between. You choose when you make loan payments within that long-term time frame.

What Happens When You Cannot Repay a Reverse Mortgage

If you cease living on the property, you are given a certain time window in which you must repay the balance. If you or your family cannot pay the full balance by the due date, the home can be sold. Any positive balance after the loan is paid goes to you and your family. If there is still debt after the sale, it is ignored. No other assets, such as vehicles you own, can be seized.

Is a Reverse Mortgage Best for You?

To figure out if a reverse mortgage is truly best for you, you must weigh the above factors and others. For example, a reverse mortgage obligates you to stay in the home for as long as you want to keep the loan active. In general, many retirees prefer this type of loan because they are well settled and have no intention of moving. But, if you are less settled, you may want to think twice before applying.

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