An alternative path to retirement finance – reverse mortgages
Even if you have worked hard your whole life, planning the right levels of finance for your retirement years can often be a challenge. And that is even if unplanned events do not occur – sudden injury or illness, or a family member falling on hard times. Because of this, creative financing options such as reverse home mortgages can provide much-needed financial flexibility for retirement finances, and to fund some things you never thought you would be able to afford to do.
What about my original mortgage?
The fundamental premise with reverse mortgages is that you use it to pay off your existing mortgage. Once this has been paid off, the balance of the funds from the reverse mortgage are yours for your retirement to spend as you see fit. You do not repay anything on the reverse mortgage until the time comes when you decide to move home, or fail in your contractual obligations on the reverse mortgage.
There are some other standard requirements such as the home with the reverse mortgage on must be your primary residence and that you must continue to pay property taxes and insurance on the property. You are also responsible for the cost of any maintenance and upgrades you would like to carry out on the property. But all in all, the pros of reverse mortgages tend to far outweigh the cons.
How does a reverse mortgage pay out?
Reverse mortgages mean you get a certain portion of your home’s value as working capital for your retirement years, minus the amount it is taken to buy your home at its current market value. The payout comes as a flexible option, either as a credit line with your lender, a lump sum payout, or regular monthly payments – it is the borrower’s choice.
Many reverse mortgage customers opt for regular monthly payments in order to inject some predictability into their retirement years through the receipt of regular payments. But the great thing about this type of loan is that the choice is yours, and if you prefer to take a lump sum and enjoy it while you can then it is completely your call.
How much borrowing does a reverse mortgage facilitate?
The amount your lender will provide is variable on two factors. Firstly, the current market value of your home. Secondly, the borrower’s credit rating, and based on that, the application of the law to confirm what percentage is available to borrow.
Using a reverse equity calculator with your chosen lender can clarify these questions, and help you to form a clearer understanding of the costs and benefits of this creative financing option. Your lender will also be able to walk you through the steps and costs of the process.
What costs are involved?
Once the cost of your current mortgage and any closing fees have been dealt with and fully paid off, the balance of the reverse mortgage is yours to enjoy in your retirement years. The flexibility afforded by the fact that you don’t repay anything on this mortgage until your home is sold means that you only pay the interest on this loan as and when you sell your house.
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