When you retire, you may have trouble paying for expenses that pop up. Those might be ongoing monthly expenses or emergencies you do not expect. In either case, tapping into the value of your home and converting some of it to cash can help. You could do that with a traditional home loan, but not without some consequences you may not want. However, as long as you are at least 62 years of age, a reverse mortgage may offer the alternative you need without so many complications.
The “Reverse” in “Reverse Mortgage” and What it Means
You might wonder what “reverse” really means when talking about a reverse mortgage. It means the mortgage pays you instead of you paying it. A traditional mortgage requires you to pay it back in increments over a short period of time. A reverse mortgage can actually provide you with funds over a long period of time without such repayments being necessary. The long-term repayment requirement allows you to financially relax during your retirement.
Figuring Out Your Home’s Eligibility for a Reverse Mortgage
As a retiree, you probably qualify for a reverse mortgage. The question is does your home? A reverse mortgage calculator can help you answer that question. It is a tool for calculating reverse mortgages that can determine the specific amount you can borrow. The reverse mortgage calculator is necessary for several reasons. One is there are a lot of issues that can affect the total value of your home. Another is that total value cannot be borrowed anyway.
The government establishes limits for reverse mortgage lenders. Your lender must loan you an amount of money that is within those limits. The reverse mortgage calculator can use current formulas and parameters to help you and your lender establish the available cash amount. Then you can establish how you want to borrow that amount.
Establishing that your home has enough value to borrow against is not the only aspect of eligibility. You also can only apply for a reverse mortgage on your primary residence. Your vacation home or any other property you own does not qualify. You also cannot get a reverse mortgage on a small apartment building unless you live in one of the apartments yourself.
How Long a Reverse Mortgage Can Last
There is no real limit on how long a reverse mortgage can last. It might even last for a decade or more. However, it only lasts for as long as you use the home as your main residence. You can leave for short periods, such as hospitalization or vacations. However, you are typically considered no longer living at the residence after multiple months away. If you do vacate the home, you are given a certain length of time to pay the loan balance.
What Happens When a Reverse Mortgage is Not Paid Back
If you are unable to pay a reverse mortgage back, you may wonder what will happen to your home. Your family can pay the mortgage off on your behalf. However, if they choose not to or are unable to, the home is sold. The funds from the sale are used to pay the loan balance. If funds remain, you or your family receive them. If the lender is still owed funds after the sale, that balance is erased. Other assets are not salable for loan repayment purposes. They are protected.
Other Reverse Mortgage Issues to Consider
There are some other potential reverse mortgage issues you should also consider before signing a loan agreement. One is a reverse mortgage can last for a long time and accumulate interest for that entire time. Another is some reverse mortgage funds are taken up front. Those funds are used to cover mortgage fees. So the total available equity you can borrow and the amount of money you actually receive may vary.