You may have heard of something called a retirement mortgage. It is more commonly known as a reverse mortgage, and it is only available after you reach age 62. The special retiree-centered mortgage is frequently advertised and rapidly gaining popularity. The question is why is it so popular? Once you understand how it differs from a standard home loan, that may become obvious.
A Traditional Mortgage May Cause More Problems Than it Cures
You might be wondering what is wrong with a traditional mortgage. In general, the answer is nothing. People have been getting home mortgages for many years. But, if you are retired, you may already be feeling a money crunch. If so, the last thing you need is a monthly mortgage bill you have to pay.
A Reverse Mortgage Solves That Problem
A reverse mortgage solves the problem of dealing with a monthly mortgage bill. That is because it doesn't come with one. Instead, you pay the mortgage back when you can with no set schedule. That allows you the freedom to use your reverse mortgage funds without the worry of how to repay them immediately looming over you.
Reverse Mortgage Value Calculation
One thing you do need to know about a reverse mortgage is it does not allow you to borrow the total value of your home. Instead, a reverse mortgage calculator is needed to decide how much you can access. A reverse mortgage calculator is a tool used online by you and your bank or lending institution. It helps accurately determine how much money you can borrow because it takes into account government lending limitations and other influencing issues.
You Can Borrow What You Need as You Need It
Another reason reverse mortgages are popular is you can borrow what you need when you need it. For example, one standard option is to set up the agreement so you receive small payments each month until funds are no longer available. That can help you simulate your former regular income you received before retirement. However, you can only borrow the total amount determined by the reverse mortgage calculator. After that, payments to you cease.
Alternatively, you might be completely comfortable with your financial situation when you retire, until an emergency arises. If so, you might need to request a lump sum to deal with that emergency. You may also be the type of person who wants to prepare ahead for emergencies. In that case, setting up a home equity line of credit when you sign a reverse mortgage agreement allows you to draw out funds only when you need to.
A Reverse Mortgage Provides More Peace of Mind
When you apply for a reverse mortgage, you need to stay in your home. That is part of the agreement that keeps the loan active. That is in contrast to a traditional loan, which comes with the constant potential threat of eviction for missed payments. That means you can have more peace of mind with a reverse mortgage. However, you do have to take full responsibility for all aspects of maintaining your home, including repairs and tax payments.
Making the Final Choice About a Reverse Mortgage
Although it is easy to see why reverse mortgages are so popular, you should not jump into a reverse mortgage agreement blindly. There are some issues to consider. For example, a reverse mortgage is a much more long-term agreement. Therefore, it comes with more interest to pay than a traditional loan. That also means you may need to stay in the home for many years. Weigh those variables carefully before signing any loan contract.