Reverse Mortgage Points of Consideration

There are a lot of reasons you may need more funds when you retire. Medical bills, hobbies you always wanted to explore but never had time for, and fun activities with your family are just a few. Whatever your reasons are, supplementing your small fixed retirement income may be essential. A reverse mortgage can help you do that.

Why a Reverse Mortgage Might Help More Than a Traditional Mortgage

When you take out a traditional mortgage on your home, you are obligated to pay it back according to a certain schedule. That schedule includes a set loan period and scheduled partial payments. A reverse mortgage provides you with more freedom to spend money during retirement without worry because no such schedule exists. The loan is set up to be long-term. In fact, you are encouraged to take many years to pay it back.

When You Can Get a Reverse Mortgage

To get a reverse mortgage, you must be 62 or older. If you are having your spouse cosign the agreement, he or she must also be 62 years of age or older. According to the reverse-mortgage rule, you also have to apply for a mortgage only on the residence you are permanently living in. Additionally, you need to agree to keep up your responsibilities as the owner of the home for as long as the loan lasts.

You also cannot get a reverse mortgage unless your home itself qualifies. There are government rules in place limiting how much of your home equity is available as spendable cash. Since you can only access a certain amount of that total, it is important for the total to be high enough. That way there is enough money to bother borrowing. The home also has to be a single family residence or a small apartment building. A large apartment complex cannot quality, even if you own it.

You Can Choose Between an HECM or a Regular Reverse Mortgage 

You might have heard about a home equity conversion mortgage (HECM) while researching reverse mortgages. They are almost alike, with some small differences. An HECM is offered specifically through a government organization, such as the Department of Housing and Urban Development (HUD). As such, it comes with a few different rules and stipulations, but it is insured federally. A standard reverse mortgage offered through a local bank is subject to federal laws but not insured in the same way.

Maintaining Multiple Mortgages on Your Home

You might already know you cannot have multiple mortgages on your house simultaneously. However, having one does not exclude you from qualifying for the other. If you already have a traditional mortgage, you can qualify for a reverse mortgage, assuming you meet the other qualifications. The catch is you must pay off the balance of the traditional loan right away after qualifying for the reverse mortgage. Funds are deducted from the total the reverse mortgage allows you to borrow for that purpose.

After you have paid off your traditional mortgage and any fees have been deducted, you are free to spend other reverse mortgage funds at will. Therefore, the question to ask before getting a reverse mortgage with an existing home mortgage is how much money will be left when all of those fees are paid? If the answer is enough to make the loan worth it, the reverse mortgage can still benefit you.

The Overall Impact of a Reverse Mortgage

Before you get a reverse mortgage, consider the overall impact. In the short run, you can get the financial freedom you need. However, in the long run you may face challenges like being obligated to stay in the home or allowing its sale if you move. Make sure you keep present and future in mind to make the decision that suits your needs the most.


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