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Understanding the Procedure for Acquiring a Reverse Mortgage
You may be aware that a reverse mortgage is a special home loan that can provide you with financial assistance if you are 62 or older. The special reverse loan was first developed in the United States in 1961. It was the result of a peer attempting to help a woman who was in danger of losing her Maine home. The Maine resident struck up an agreement with the lender that eventually evolved into the reverse mortgages used today by private and government lenders alike specifically for retirees. If you want one, you must first understand the reverse mortgage acquisition procedures.
Understanding What You Will Owe and When
When you borrow money through a reverse mortgage, known as a home equity conversion loan (HECM) when obtained from a government agency, you need to understand the amount you will borrow is not the amount you will owe. A reverse mortgage is a long-term home mortgage that can be active for many years. The loan is not called in until you move out of your home.
The long-term nature of a loan obtained from a reverse mortgage lender can be advantageous because it will allow you to enjoy your retirement unhindered by an extra loan payment. However, it does have drawbacks. One of those drawbacks is the loan will keep accumulating interest for that entire time. Therefore, when you do finally leave your property, you will owe a lot more than you initially borrowed.
Figuring Out the Total Available Reverse Mortgage Amount
Another thing you must understand about a reverse mortgage is it takes time and a special tool to help you figure out what you can borrow. That tool is called a reverse-loan calculator. It is necessary because of the ever-changing nature of the housing market and the government laws that cap the home equity percentage that can be borrowed, even from a private lender. The reverse mortgage calculator will tell you exactly what you can borrow. Then you can decide how to borrow it.
Methods for Borrowing Reverse Mortgage Money
One of the easiest ways to borrow reverse mortgage money is in monthly installments. Those monthly payments to you from your reverse mortgage lender will continue like clockwork until the amount determined by the calculator tool is depleted. Although borrowing that way can be helpful if you are worried about paying monthly expenses, you do have other options.
Another way to borrow reverse mortgage money is by creating a line of credit you can draw from. The line of credit will remain open until you borrow the total available. You can decide exactly what you borrow and when. If that option does not appeal to you, a third option you may prefer is a single withdrawal from your home equity called a lump sum payment. That may benefit you if you have a large expense to pay immediately, such as a hospital bill.
Repaying a Reverse Mortgage or Allowing Home Sale
When you apply for a reverse mortgage, your home becomes loan collateral, but none of your other assets, such as vehicles, are included. Therefore, when you leave your home if you cannot pay the remaining amount owed, only the home itself can be sold. If more money is made from the sale than you owe, you will receive the balance. If less money is made than you owe, the remainder you owe will be forgiven by the lender.