Although many people look forward to retirement during their working life, going into retirement with not enough money is no laughing matter. A reverse mortgage is a popular option for those who wish to free up some extra money upon retirement, but before committing something as large as a loan you should make sure that you understand all the terminology and implications of this specific financial solution. There are some concepts that you should have a grip on.
Explain to me what a reverse home loan is, in quick and easy terms
Put simply, a reverse home loan is the inverse of a regular home loan. With a regular home loan, you would have been obligated to pay money towards the loan every month. Conversely, with a reverse home loan, you have money paid towards you every month, once the loan has been granted. In summary, it is a long-term loan that gives you access to money you have borrowed against the existing equity upon your permanent home.
This acronym is short for a home equity conversion mortgage. It is more or less the same thing as a regular reverse mortgage, except that a home equity conversion mortgage is generally issued by an agency of government, whereas a reverse mortgage is issued by a bank or any other regular reverse loans lender. The functionality of the two is broadly the same, that a home equity conversion mortgage is issued with government insurance included. This is the only actual factor that sets the two apart.
Reverse mortgage calculator
This useful tool is used by lenders to calculate what your realistic financial position is at the time of applying for a loan. The lender's final decision is influenced by several other factors, such as the condition, location and age of the house against which you wish to borrow money. Unfortunately, federal law prevents you from receiving the full value of your home in the form of a loan, and therefore the reverse mortgage calculator can be used to determine what percentage of the total overall value of your home you would be eligible for.
What if I already have another home loan?
If this is the case, you will not be prevented from applying for a reverse home loan, but you will have to use whatever amount of money is granted to you in the form of a reverse mortgage to settle the initial loan first, before you can access the balance of the funds in your reverse mortgage.
How do I access my money?
A reverse mortgage is exceptionally useful, it is flexible enough to allow you to take receipt of your money in one of several different ways. The first option is to make it available to you as a line of credit, where smaller amounts of the total is made available to you as and when you need it, in appropriate amounts. You could also opt for a lump sum payment, or as I mentioned earlier in this article you could have it paid over to you in monthly installments, the most popular option in terms of budgeting.
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