Thursday, May 14, 2020

Factors in Considering a Reverse Mortgage

Retirement home loans, also known as reverse mortgages, are a great solution for people 62 years of age and older. But before you bid yourself to any new financial commitments, you need to know what’s in it for you. If you don’t know the difference between a normal loan and a reverse mortgage, let me break it down for you.

Money is a concern – isn’t another commitment risky?
Repayments are a vital consideration when you are considering taking out a loan. In a traditional loan environment, you are bound to the repayment terms on a monthly basis for as long as the loan is valid. You need to start repayments as soon as the loan is granted, and you will be expected to deliver on your promise of honoring the repayments for several years, until the amount is cleared. Committing your money to an external destination is not exactly the way to get to a comfortable retirement!

A reverse mortgage, on the other hand, allows you some breathing room, as you are not under any pressure to start repaying it immediately. It also requires you to live in the house that is linked to the loan, so the risk of eviction is significantly lower. But be careful of the fine print – if you break any terms of the agreement, your loan can be legally revoked. However, many agree that the immediate benefit of having cash available outweighs the terms and conditions.

Why it called a “reverse” mortgage?
Because it behaves in the opposite way to how a regular loan would! To be specific: a conventional loan requires a monthly commitment of a certain amount that you have to pay back to the lender. A reverse mortgage allows you to receive payments from your lender monthly, almost like a salary, which is an excellent additional source of retirement income.

But What About My Existing Home Loan?
You can apply for a reverse mortgage while holding a conventional home loan, but the law expects you to settle the first loan using money made available by the reverse loan, before you can access the balance of the capital.  

Am I Still Liable for Other Home-related Expenses?
The short answer is yes. Unfortunately, taxes and home maintenance don’t stop mattering after retirement, and you remain responsible for these expenditures. A reverse mortgage remains valid as long as you live in your house, but if you violate the loan agreement by filing for bankruptcy, moving out of the house, or not paying your taxes, the lender can declare your loan null and void.

For How Long is the Loan Valid?
Unlike a regular mortgage, where your loan remains valid if your repayment terms are adhered to, a reverse mortgage only requires you to live in your house and retain ownership of it, in order to be valid. The repayment period could be as long or as short as you choose to remain in the house that has the loan linked to it.

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