Tuesday, December 15, 2020

Why Knowing Your Reverse Mortgage Rate Can Change Your Retirement

Why Knowing Your Reverse Mortgage Rate Can Change Your Retirement

When you reach the end of your working career, retirement can lie ahead of you like a open field, or like a mountain that need to be climbed. If you have been fortunate enough to have put in place different income streams for your retirement days, it is unlikely that you will feel the pressure of your working life coming to an end. But if finances have run away with you, and you find yourself without a plan B, you will have to come up with another plan. A reverse home loan is a stable alternative to taking out a personal loan, as it not only offers greater flexibility, but a longer payback period, and reasonable terms.

Should you approach a private or government lender?

Reverse mortgages are available in one of two forms - a privately lent version, or a government-issued one. A private mortgage is generally for single-purpose usage and issued by a private lender, like a bank. The second option, when issued and backed by the federal government, is also insured by government, and is commonly known as a home equity conversion mortgage. It is made available to the public via government agencies, like the Department of Housing and Urban Development.

But a loan remains a loan, and there are terms and conditions that you will have to adhere to if you would like to remain compliant with the deal you signed. First and foremost, you will not only have to legally own the property to which you intend to bond the loan, you will also have to live in it permanently. As such, you will not be able to take out a reverse mortgage on a holiday home or a rented property.

What’s it worth to you?

The value of your property is the center point around which your reverse mortgage verdict rotates. Government has put into place certain laws that prevent borrowers from borrowing more than a certain percentage of their home’s value in the form of a reverse home loan, in order to curb overborrowing.

Because you are legally limited to only having a percentage of the value of your house made available to you as a loan, the total amount you are granted will be based on what your lender determines the value of your house to be. This value is independently and subjectively calculated using a tool known as a reverse mortgage calculator, in use by all lenders. Factors that are taken into consideration include your house’s location, condition, and whether all property taxes are up to date.

The minimum application age for a reverse home loan is 62 years of age. (Remember that a reverse home loan is also known as a retirement home loan!). If you have any outstanding debts at the time that your loan is granted, those will be settled first, using the funds made available to you in your loan, before you will be granted access to the balance of the money.

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