Reverse Mortgages: What you need to know

A Reverse Mortgage Was Designed for You

Retirees inspired the creation of the reverse mortgage as we know it now. It began in the 1960s in Maine when a woman was worried about losing her home when her husband retired. Since then, lenders have developed the reverse mortgage method to help.

A Reverse Mortgage Lets You Borrow Your Way

One of the most useful things about applying for a reverse mortgage when you retire is you can borrow the money the way you want to. If you take out a traditional mortgage, you typically receive a large amount of money up front, which you have to pay back slowly before a specific deadline. You have a similar option of getting a lump sum with a reverse mortgage. 

A lump sum might sound fine. However, lines of credit for reverse mortgages are also available. A line of credit lets you take out only what you need and minimize your debt. Even if you do want to borrow the full amount available, you do not have to borrow it all at once or get a line of credit. A third way is to ask for the money to be given to you each month in payments of equal size for as long as those payments are available.

Repayment is a Long Way Off

Another major difference between a standard mortgage and a reverse mortgage is a standard mortgage comes with payments you have to keep making to keep the lender happy. Missing them could mean facing eviction from your home. With a reverse mortgage, any type of repayment to your lender is a long way off. Sometimes, no money is due for many years. That leaves you free to spend the funds as you need to and not fear checking your mail and getting a mortgage bill every month.

You Keep Your Home Ownership Status

A reverse mortgage is an excellent way to keep your home ownership status safe. However, that also means you have to keep up with your responsibilities, as the owner of the home. Tax payments and other financial requirements must be met. Otherwise, the agreement may be breached.

You Repay the Reverse Mortgage Or Not

When you move out of your home, your two options are to repay whatever debt remains or not. If you do not, other assets are safe from seizure. However, your home itself is seized and sold. Similarly, any violation of the loan agreement results in the loan being called in. At that time, you have to pay or let the home be sold.

Failure to Repay a Reverse Home Loan

Although you have a long time to repay a reverse mortgage, the balance is eventually owed. That balance also includes years of accumulated income. If you cannot or will not repay what you owe and the home is sold, you may be wondering what happens next. The answer is any remaining debt is erased after the sale. If there is a positive balance after the loan is fully paid, the remainder goes to you.

The Long-Term Impact of a Reverse Mortgage

A reverse mortgage can have a long-term impact on your lifestyle. That includes positive and negative changes. For example, you are obligated to avoid moving for as long as you want the loan agreement to stay valid. However, you can financially take a breath and relax, which may be well worth it to you.

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