If you are curious about how a reverse mortgage can help you enjoy retirement because you have reached age 62 and are now eligible for one, you need to learn about its benefits. There is a lot of confusing information you may have seen about them. For example, you may be struggling to understand why a reverse loan can be more helpful during retirement than a traditional one.
Before you can understand how a reverse mortgage can benefit you, you need to understand what it is. It is a long-term way to borrow money from the total value, or equity, of your home. The “long-term” part of a reverse mortgage agreement is you do not have to pay any part of it back immediately, unlike when you take out a standard home mortgage. In fact, the total balance will not be owed for as long as you remain living at that address. Here are some other benefits of reverse mortgages.
You Can Borrow Reverse Mortgage Money However You Want
When you take out a traditional mortgage, you usually get a large single payment and have to pay it back in small bits over time. You can request a lump sum payment like that from your reverse mortgage lender, too. However, a more useful option during retirement, which is allowable with a reverse loan, is to request monthly payments from the reverse mortgage lender. You can use those payments to pay utility bills and other ongoing expenses. A third option reverse loans afford is the ability to open a line of credit and borrow from your home equity as needed, up to a certain total.
The total amount you can borrow using a reverse mortgage depends on the total value of your home. However, that is not the available amount. That amount must be plugged into a reverse mortgage calculator. The reason reverse mortgage calculators are necessary when calculating reverse loan amounts is there are laws in place to protect borrowers like you and lenders. The purpose is to keep the lenders from entering into bad deals with you or other borrowers.
You Can Spend Reverse Mortgage Money However You Want, with One Major Exception
When you retire, you probably want to have the money needed to actually enjoy your free time. The nice thing about a Reverse Mortgage is there are no major limitations on how you can spend the money. You can use it to pay off bills, but you can also use it to fund whatever retirement hobbies you enjoy. Therefore, you can have a lot of financial freedom and less stress.
The major exception is, if you already have a mortgage on your home, your lender will require you to pay it off immediately. You must use funds you receive through the reverse mortgage to do that right away. You are not legally allowed to have a standard loan and a reverse loan at the same time. However, once that debt is paid, the remainder of the money can be spent for any purpose.
You Do Not Have to Worry About a Specific Loan Period
A reverse mortgage is also potentially beneficial during retirement because you will have no specific loan period. A loan period is a set duration for a loan. A reverse mortgage has no loan period because the balance is not owed for as long as the house is yours and you live in it consistently. If you maintain residency for five years, the loan last for five years. But, if you stay in the home for 15 years, the balance is not due for 15 years. Therefore, you have a lot of control over how long the loan lasts.