Advantages and Disadvantages of Reverse Home Loans

Are you ready for a reverse mortgage? The thing with retirement is you think you have time. One day, when it’s suddenly upon you, you want to know that your financial footing is solid.

Although many people opt to mortgage their house, it is not an advisable option, as it could result in tying yourself down too many years of debt.

Reverse Home Loans

For many people of the age of 62 and older, relief often comes in the form of a reverse home loan, also known as a retirement home loan. If you need to apply, the main consideration is to be the legal owner of your house and live in it permanently.

Show me the money

A reverse mortgage can be set up in one of three ways in order for you to get access to your cash. You could choose to have the entire amount paid over to you immediately in one lump sum with no further claims, which is useful if you might need access to a large amount of money unexpectedly.

The other options are to set it up as a line of credit and take money out of the loan account as and when you need it, almost like you would have with a credit card.

The final option is to ask your lender to release the money in episodic monthly payments. To a large extent, this option mimics how a salary would have worked for you in your working days, making it easier to budget and cover monthly expenses.

Where is the limit?

At the beginning of your application process, your reverse mortgage lender will assess your financial situation through the use of a tool called a reverse mortgage calculator.

This calculator takes into account several factors that affect your financial position, such as the age, condition and location of your house, and how much is still outstanding on your original mortgage.

This information is collated, and your lender will come to a final decision about what percentage of your home’s total value can be lent to you.

Remember that you will only ever be eligible for a percentage of the total value, as federal laws prevent you from borrowing the full amount.

If you are already paying off a regular mortgage, you would have to settle that amount first before you will have access to the balance of the funds in your reverse home loan.

What’s the hidden fine print?

As with any loan, there are certain conditions that you would have to adhere to. One of these is that you have to be permanently residing in your home for the duration of the loan validity, and that you have to be its primary owner.

Unfortunately, this cuts out the possibility of leaving home for several months at a time, but on the upside – it is very difficult for anyone to evict you from the house, as that would contravene the loan conditions!

Add to this the ability to pay your taxes and general running costs of your home, and once all of this is in place, there should be no reason why you should be denied your application for a reverse mortgage.