Pulling Cash from Your Home Equity with a Reverse Mortgage
Retirement offers a lot of fun and helpful perks, such as discounts at certain attractions. It also offers you an opportunity to potentially qualify for something called a reverse mortgage. It is a variation on a traditional home loan that is specifically set up to make your retirement easier. Pulling cash from your home equity with a reverse mortgage can help you stay financially stable. Here’s what you need to know about a reverse mortgage process and how it differs from a standard home mortgage.
Home Equity and Mortgage Qualification Concerns
One way in which traditional and reverse mortgages are similar is both require certain facts to be true. For example, you must be a homeowner to qualify. The home itself must also be valuable enough for there to be available funds to borrow. Both mortgage types also require you to pay interest.
A Reverse Mortgage Offers More Borrowing Freedom
A reverse mortgage is only provide to retirees or those of retirement age (at least 62) for a reason. That reason is it is set up to provide borrowing freedom that can help you financially enjoy retirement. That freedom is something that a traditional home mortgage does not provide. A traditional mortgage requires you to make regular repayments or risk loss of your home.
A Reverse Mortgage is Less Strict Regarding Repayment Scheduling
The financial freedom associated with a reverse mortgage comes from how you pay the borrowed funds back. Part of how a reverse mortgage contract works is you can borrow money free of repayment requirements for a long time. You will not receive regular mortgage bills in the mail as you will when you have a traditional mortgage. Instead, you more or less choose when to repay the loan balance.
When a Reverse Mortgage Balance Can Suddenly Become Due
There are situations when your reverse mortgage balance can suddenly become due. For example, you must keep paying taxes and caring for the home. If you fail to meet certain obligations, you are considered in breach of contract. Similarly, you cannot file for bankruptcy without your balance becoming due.
A Reverse Mortgage Obligates You to Stay in the Home
Another stipulation of a reverse mortgage is, if you leave your home permanently for any reason, the balance is owed right away. Since it is a long-term agreement, that means you should not apply for a reverse mortgage unless you expect to remain in the home for several years. If you do leave it and cannot pay the home balance, sale of the home is required. Proceeds help pay the balance owed.
A Reverse Mortgage is Less Risky in Some Ways
Part of the appeal of a reverse mortgage is it is viewed as less risky than a traditional home mortgage. That is certainly true in some senses. For example, it does not increase your monthly bills like a traditional mortgage does. You also cannot miss payments because there is no schedule to follow for repaying the loan. Additionally, a reverse mortgage obligation is entirely legally separated from any other property or assets you own.
Making Your Ultimate Mortgage Application Decision
Despite all the seemingly large advantages of a reverse mortgage, you must also consider the disadvantages before signing a loan agreement. For example, the amount of interest you must eventually pay on a reverse mortgage is much higher than what you might pay on a traditional
mortgage. However, financial freedom for most of your retirement might be worth the eventual interest you have to pay, especially if you are in need of immediate financial help.