Understanding That A Reverse Mortgage Does Not Nullify Your Mortgage Debt
When you reach retirement age, and you have been paying on your mortgage for decades, you are probably excited to hear about a "reverse" mortgage. Sadly, this is not where you get to charge the bank or mortgage lender in reverse for all of the money you put down on your home. Yes, you can get money "out" of your house, but it does not work the way it sounds or the way that you might think. If you are interested in knowing more about a reverse home mortgage as a program overall, and its potential to benefit your retirement, the following is provided.
It Is Actually a Type of Equity Loan
The only way you can get a reverse mortgage is if A) you have built up enough equity in your home, and B) you are 65 and older. The amount you can borrow cannot exceed the amount of equity in your home. The biggest difference here is that you are not responsible to make monthly payments on this loan, whereas the standard equity loan requires monthly repayments. Some lenders also require a minimum borrowing amount, such as ten thousand dollars, and you cannot have more than one reverse mortgage. Ergo, if you really are going to take out a reverse mortgage, you may want to consider taking out the full amount you can borrow from the equity in your home.
Repayment Does Not Begin until You Die, Sell the Home, or Move Out
If your children move you into a supported living facility, that is considered moving out and they will have to begin repaying the reverse mortgage or sell the property. If you pass away and your spouse is no longer in the home or living, repayments begin. If you sell the home, all of the reverse mortgage amount borrowed minus any amount in excess of the value of the home has to be repaid out of the money you get from the sale. Interest begins accruing on the loan from the day you receive the cash, so by the time repayment begins, you may end up with nothing from the sale of the home.
How It Helps Your Retirement
On the flip side, if you have tens of thousands of dollars in equity on your home, and you were not able to save any money for retirement, you can put together a nest egg from the reverse mortgage. The money, if smartly invested over the next twenty years, could more than make up for the final repayment of the loan. It also provides you with a lot of cash to address any major health concerns that develop, purchase another property to generate a second income, travel, or do anything else you have always wanted to do.
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