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Retiring can be a joy, but it can also be a bit of a financial nightmare. Suddenly finding yourself with less money available then you are used to is a difficult adjustment to make. Even if you manage to make that adjustment, you may have no wiggle room. The slightest emergency that pops up could cause you to lose control of your tight budgeting plan. Exploring your reverse mortgage options could potentially assist you. Here are some reverse mortgage specifics to get you started.
You Pay a Reverse Mortgage When You Can
A reverse mortgage is a type of loan you can only get when you reach retirement age (62). It allows you to pay the balance back only when you can without a mortgage bill that comes in each month. While traditional mortgage payments are easy to miss, jeopardizing your home, reverse mortgage payments are totally on your schedule. In fact, it can take many years before you repay any part of the loan. Your lender encourages waiting when such an agreement is in place.
A Reverse Mortgage Pays You the Way You Want
Another advantage of the reverse mortgage agreement is it pays you the way you want. You pick your payment receipt option when you sign up for it. You can choose from three options or, in some cases, create an agreement that includes a combination of those options. They are home equity line of credit, monthly instalment, and lump-sum options. That means you can get exactly the amounts you want when you want them, eliminating your financial stress entirely.
The Reverse Mortgage Catches to Keep in Mind
There are a couple small caveats of applying for a reverse mortgage. One major catch is that you have to be very careful to hunt for the lowest interest rate possible. Since a reverse loan agreement can be in effect for over a decade, it has a lot of time to let interest keep adding to it. A standard mortgage lasts for a predetermined period, so you always know exactly how much interest you will pay on it.
Another catch is the agreement only stays active for as long as you are the owner of and a resident in the house. As soon as all contract signers no longer live in the home, the loan becomes due. That means, should you ever choose to move, the home must be sold or you must quickly repay the full amount remaining.
A Reverse Mortgage as it Relates to Traditional Mortgage Resolution
Although not really a catch, you need to also know how a reverse mortgage works when you have a standard mortgage already. The process may not be exactly what you expect. That is, both agreements do not stay in place at once, allowing you to keep making minimum payments on the first loan. Instead, the whole balance you owe on the first loan is paid as soon as the reverse mortgage funds are released to you. Whatever amount remains after that process is money you can spend freely on whatever needs you have. For that reason, a reverse loan is a great way to get out from under a traditional one.
Lender Selection for a Reverse Mortgage
As you can see, the decision to get a reverse mortgage or not can be complicated. Take all the time you need to be sure. Once you are sure, one last thing to be careful of is choosing your lender. You can pick from government agencies or private banks. Either way, make sure it is an established lending institution you can trust. That way you can guarantee the mortgage agreement will be fair and legitimate.