What comes to mind when you hear the word “retirement”? This phase may be the best time of your life, as you get to do the things you’ve always yearned for during your career or workdays. You can’t wait to start a new life with your family, take up that cooking course, or enjoy an extended vacation in the Maldives. However, you need money to accomplish these goals. But what do you do if in the absence of personal cash? No need to fret; you can always take a loan. “Do you mean a mortgage?” No, if you are thinking in the direction of a traditional loan. I am referring to a reverse mortgage.
Reverse Mortgage – What Does It Mean?
Probably you know what a standard mortgage means and how it works. Unlike this traditional loan that takes money from your pocket every month, a reverse mortgage does the opposite – puts cash in your pocket. And guess what? You still have access to your home; this is even a prerequisite to securing a reverse mortgage from your lender. Your home should be a place of your primary residence. Additionally, it is a requirement that you live there permanently.
Here is where it gets interesting; with a traditional loan, you can risk facing eviction if you fail to meet the repayment requirements. With a reverse mortgage, you can reside in your home for as long as you want, provided that you can cope with the home insurance and maintenance fee. The only time you get to repay the loan is when you have the money or decide to relocate to a new apartment. You can also lose your loan’s validity if you don’t pay other mandatory fees – insurance, taxes, and maintenance cost.
Commencing with a Reverse Mortgage
A reverse mortgage is also known as a retirement loan. Do you know why? The minimum age to qualify for this mortgage is 62 years. You can’t be younger than that. Another area of eligibility is your creditworthiness and the equity on your home. Your lender will determine these factors through a reverse mortgage calculator. There will be a need to run a background credit check to determine if you can pay back the loan. Like I stated before, your home must be your permanent, primary residence – not a vacation home or a rental apartment.
Once you qualify for the loan, it is essential to pay off your outstanding mortgage (if any) and the closing cost. The lender will deduct these fees before releasing the remaining money to you. Interestingly, you no longer have to wait for more extended periods before repaying your loan, as there is an option for early repayment. However, bear in mind that this comes with a fee.
The Next Line of Action
Before applying for a reverse mortgage, be sure it is what you want and what you can handle. The last thing you want is to be unable to repay your loan when due. Of course, there is also the issue of property taxes, home insurance, and maintenance cost. You will be more eligible if your credit score is of good standing. If you have multiple-story apartments, you have to convert one of them to your permanent primary residence to qualify for the reverse mortgage.
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