Let’s face it, getting older, and facing retirement is both scary and exciting. I know that I worry about whether or not I’ll have the money to be comfortable when I retire. Some people look forward to being able to travel. Honestly, I just want to be able to relax and enjoy crafts with the grandkids. Income becomes reduced when you retire. So how do you make extra money when you’re retired? A reverse mortgage might be a good option.
What is a reverse mortgage?
A reverse mortgage is a type of home loan that you can take out when you hit the age of 62. It lets you borrow money against your home to use as a type of income. As long as you remain in your home as your primary residence, pay your taxes and insurance, and keep up the maintenance on your home, you don’t have to pay it back. When you decide it’s time to move, then you pay the reverse mortgage back, usually with the proceeds of your home’s sale.
Reverse mortgages can be large or small
Using a reverse mortgage calculator, your lender can help you figure out how much you can borrow in a reverse mortgage loan. The loan is typically based on the size of your home and its value at the time of the loan origination. Small reverse mortgages are great for small homes. Say your home is worth more than what you can borrow in a regular reverse mortgage. Your lender may recommend a jumbo reverse mortgage. Big or small, they work the same way.
Should I get a private reverse mortgage or a federal one?
That depends on if you want your loan to be insured at the federal level. Both the Department of Housing and Urban Development (HUD) and other federal agencies offer reverse mortgages. You need to meet the same standards for the loan as you do for one from a private lender. Plus, there are more rules on a federal loan. Each has its pros and cons.
For example, the private loan may have a set limit on how much you can borrow. But then, you might be subject to rules that are unique to the private lender. It's worth doing your homework into both types of reverse mortgage loans. Consider using a reverse mortgage calculator as well to see which will give you the better deal. You can find one online.
What else do I need to know about reverse mortgages?
Probably the most important thing you need to understand is how the total amount of a reverse mortgage is calculated. Using a reverse mortgage calculator, the lender will figure out how much you can borrow based on the value of your home and the borrowing caps set by the government. You will never be able to borrow the whole equity amount of your home, so don’t get too excited. Instead, you will be able to borrow a good chunk of the equity. Add to that the closing costs on the loan and any other fees, and you’ll know exactly how much you will actually get from the loan in spendable cash.
Can I pay off a reverse mortgage early?
Yes. When reverse mortgages were first introduced, you weren’t able to pay it off early, refinance it or alter the contract. Today, you can do all of those things. There may some fees involved with making changes to your reverse mortgage, but the upside is that you can make the changes and you’re never completely locked in.
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