When you retire, you want some stability. It is not generally a good time to take out a traditional mortgage on your property. Doing so immediately locks you into an agreement you might not be able to maintain. It also gives you a mortgage payment to worry about. A reverse mortgage, on the other hand, could potentially give you the best of all worlds. It is just important to clarify how the process works before you initiate it.
The Problems with a Mortgage Bill
There are two basic problems with receiving a mortgage bill. The first is that your mortgage payments are scheduled, meaning you receive more than one bill. Receiving regular bills all the time can be quite stressful, especially when you already struggle to pay the expenses you had to begin with.
The second issue with a mortgage bill is it comes with a repayment requirement. If you miss the date of any payment, your lender can retaliate. That retaliation may include total loss of your home. That is the last thing you need when you want to enjoy your sunset years in comfort.
How a Reverse Mortgage Solves Those Problems
A reverse mortgage solves the above problems by simply not billing you, at least not at first. You do have to repay it, but that process takes many years. Lack of scheduling of payments means no chance of eviction in that manner. The reverse loan just does what you need it to do. That is, it gives you money to spend when you need to spend it without hassles and major immediate drawbacks.
Solving the Existing Traditional Mortgage Problem
Another issue a reverse mortgage can solve for you is helping you get out from under an existing mortgage when you already have one. Therefore, do not assume you cannot apply just because there is already a mortgage on your property. The only issue when you already have a mortgage is funds must be used to eliminate that first mortgage as soon as your reverse mortgage request is approved.
The requirement to repay an existing mortgage with a reverse mortgage does mean you have to be prepared for that fact. You may not have as much money to spend after that is taken care of as you may want. That is why you have to make sure going through the reverse mortgage process will still be financially worth it. A reverse mortgage counselor can help you figure that out. So can the calculation tool used to figure out reverse mortgage lending limits for your loan.
How You Can Use Reverse Mortgage Money
Aside from the requirement to pay off a traditional existing loan and any up front fees, you can use reverse mortgage money any way you want. The typical reason many retirees opt to apply is to help them cover the ongoing costs of utilities and other predictable bills. However, a reverse mortgage can also help you set up a vacation fund, squirrel away emergency money, or pay for anything else you want. You can even choose to treat your reverse mortgage like a credit card. By setting it up as a home equity line of credit, you allow yourself to take out exact amounts only when doing so is required.
Know Your Choices and Know Yourself
How do you decide if you do indeed want or need a reverse mortgage? After reading the facts above, you might still not be entirely sure. However, knowing yourself and knowing what your choices are helps. For example, if you are someone who plans to stay in the home you are in for the rest of your life, a reverse mortgage might be ideal. The same is true if your main concern is available cash now with no repercussions right away.