If you are heading into retirement and struggling with finances, you may want to consider using the equity in your home to help cover your living expenses. Applying for a reverse mortgage loan may be the best decision for you. Traditional mortgage loans may provide you with temporary relief, but you will still be responsible for paying that bill each month. It can also put you at risk for foreclosure if you are unable to keep up the payments. Let's compare the two:
Differences Between a Reverse Mortgage and a Traditional Mortgage Loan
Although there are some advantages to traditional mortgage loans, there are also some disadvantages. For example, a traditional loan requires you to pay back the loan in monthly installments. These payments start coming due shortly after taking out the loan. A reverse mortgage loan is different. You are not required to pay it back right away. You can also remain in your home for as long as you like.
How Much Can You Get with a Reverse Mortgage Loan?
Although there are many advantages to reverse mortgage loans, you are not entitled to the entire equity in your home. The amount you can get depends on the calculated percentage from a reverse mortgage calculator. This is what banks use to determine the amount you can receive. There is specific information taken into consideration when banks use the reverse mortgage calculator including the current market value of your home. The amount you can borrow also depends on your age, the interest rate you get on your loan, and the age of the youngest co-borrower (if you are married).
Getting Your Money
Once it is determined how much money you can get from your reverse mortgage loan, you will need to decide how you want your money. Here are the ways you can get your money:
- One lump sum payment when you close your loan.
- A line of credit - This allows you to withdraw money whenever you need it.
- Monthly Payments.
- Combining your options - This is the most customized option. For example, you can get a portion in a lump sum and the rest either in monthly payments or as a line of credit.
Fees Associated with Reverse Mortgage Loans
One thing that is similar between a reverse mortgage loan and a traditional loan is that you still must pay closing costs and fees. The good news is that these costs can be rolled into the loan amount and may not need to be paid upfront by the borrower. You can also pay off your reverse mortgage loan early if you want. Contact your reverse mortgage lender first for applicable payoff instructions.
Keeping Your Home with a Reverse Mortgage
With a reverse mortgage loan, you can stay in the home as long as you like, however, you are required to maintain the home, pay property taxes and homeowners insurance. You won't have to worry about getting evicted from your home due to non-payment like traditional loans. The money you borrow from a reverse mortgage loan does not need to be repaid until you move out, pass away, or leave the home for any reason.
