Retirement should be a well-earned few years to yourself, in which you can relax and enjoy doing some things you’ve never had time to do. But financing those dreams is another matter entirely, and once your career ends and your paychecks stop coming in it can be a little daunting.
One option for releasing some funding is to apply for a reverse mortgage – this could be a serious option for you providing you’re 62 or older and meet a few other criteria. This article gives you a few pointers to help you consider this option.
Private, or state?
Reverse mortgages are either offered by government agencies, or through private lenders. Both are solid options but take into account that if you opt for the government choice, the loan is referred to as a home equity conversion mortgage. A great benefit of this is that it is fully insured by the federal government. Private lenders refer to them as reverse mortgages, and your chosen lender will be able to assist you in understanding the intricacies of the terms and conditions.
How does it work?
With reverse mortgages, you do not make a monthly payment. Instead, you only make a repayment at the point you either pass away, or decide to move home. At that point, the end of the reverse loan comes to an end, and it is paid off with proceeds from the house sale.
The cash raised from the reverse mortgage is paid to you in a variety of ways, and is the choice of the borrower. You can elect to receive your money in regular monthly payments, as a one-off lump sum from the bank, or as a credit line with the bank that can be drawn down upon when you wish. While the most common choice is the regular monthly payment, the great thing about reverse mortgages is that you have the choice, and perhaps for the first time in your life you have some financial flexibility to base your decisions on.
The criteria are actually quite simple. You need to be at least 62 years old, the owner of the property you want to finance, and be permanently resident there. Be sure to check in the terms and conditions on this point with your lender, as there may be some criteria as to how long you need to be resident in the house each year.
Bear in mind that by law you are not able to borrow the full equity of your house value, and that you will be subject to a credit check and comprehensive background checks. Checks will also be carried out to ensure the correct taxes have and will continue to be paid on the property, whether the requisite level of buildings insurance is in place, and the state of the property in terms of its maintenance, condition and susceptibility to natural disasters such as flooding and so forth.
Your home will also be appraised for its current market value to ensure that the loan does not exceed the value of the property.
So in the grand scheme of things, there are not really too many hoops to jump through to get started with your reverse mortgage application.