The A – Z of Reverse
Mortgages
Retirement is a phase in one’s life that offers self-reflection. This timeline is the
point where you think of your accomplishments over the years and their
respective rewards, especially in the area of finances. “What have you done to
secure your post-retirement lifestyle financially?” a question that lingers on most
retirees’ minds. If you have created multiple income streams during your work or
career years, you have no worries. Otherwise, you may have to come up with
something practical – a financial safety net to catch you when your income falls.
A reverse mortgage offers just that.
The History of
Reverse Mortgages and How They Work
Reverse mortgages are
long-term loans that help homeowners meet various financial needs with less
exposure to risk, whether it be a dip in your credit score or a foreclosure on
your home. This loan option originates from Portland, Maine, in 1961. Nelson
Haynes who worked at Deering Savings & Loans decided to help Nellie Young,
a widow to his high school coach, by issuing her the first reverse mortgage so
she could keep her home. Since then, this mortgage has helped millions of
homeowners across the United States and beyond.
Before you access your reverse-mortgage fund, your lender will expect that you
pay any outstanding home loan. The reason is this – you can’t have two existing
mortgages for an extended period. Since the traditional loans are short-term,
you can transition from them to long-term loans (Reverse Mortgages)
effortlessly. Then there are closing costs and fees you have to settle as well.
You won’t notice them as your lender deducts them before giving you the final
amount.
Your Home
Equity and Government-Enforced Borrowing Limits
When applying for a
reverse mortgage, your lender will calculate the amount you qualify for using a
reverse mortgage calculator. This estimation puts into consideration your
home’s age, location, and its value on the market. It is worth mentioning that
you can only borrow a specified percentage of your total home equity, and not
all. This regulation prevents lenders and borrowers from engaging in bogus and
infeasible loan deals.
In recent years, the
government has enforced this law in which reverse loans come with highlighted
borrowing caps. It does not only apply to the government-insured reverse
mortgages, and that means the HUD-issued HECMs, but also the private,
single-purpose reverse mortgages issued by financial institutions, such as
Wells Fargo. Hence, to calculate the value of your home and the available
funds, you need a reverse mortgage calculator.
How Can You
Receive Your Reverse Mortgage Funds?
Once you qualify for a
reverse mortgage, you can set up your payment option. There are three means to
get your fund. To begin with, you can receive your money via monthly payments.
This option acts as a paycheck and runs all through until your balance is
exhausted. Having this payment plan helps you map out your monthly budget. But
if that is not for you, then you can set it up as a line of credit. Think of it
as a credit card. You can borrow money anytime you want. However, understand
that there is a borrowing limit.
Finally, your reverse
mortgage funds can come as a lump sum, which is essential if you have several
necessities to handle. Taking a reverse mortgage can boost your finances and
help you live a fantastic post-retirement lifestyle.