People look forward to retirement for most of their working life, but retirement with little available money is no joke. Many people choose the popular option of taking out a reverse mortgage upon retirement, before you commit to something as large as such a loan, you should make sure that you understand and are familiar with all the terminology that relates to this particular financial solution. Let me explain some concepts to you.
What does it actually mean?
As opposed to a regular home loan, where you would need to pay money into the loan every month, a reverse home loan is the inverse of that. What do I mean by that? Simply rather than pain towards alone monthly you can receive a monthly payment paid to you from your loan once it has been granted to you. A reverse mortgage is a long-term loan that gives you access to the money you’ve borrowed as long as you choose to live in the house the money is borrowed against.
This is the acronym for a home equity conversion mortgage. There is very little difference between this and a regular reverse mortgage. The main factor that sets them apart is that a home equity conversion mortgage is issued by a government agency, and a reverse mortgage is issued by a regular lender, like a bank. A HECM comes with government insurance, which is the only real differentiating factor.
What is a reverse mortgage calculator?
This calculator is a tool that lenders use to calculate your financial standing, based on the overall value of your home before they grant you a loan. Factors that contribute to the final decision they make, are things such as the house’s age, condition, and physical location. Federal law prevents you from borrowing the full value of your home’s equity, and a reverse mortgage calculator is useful in helping to determine what percentage of the final value you would be eligible for in the form of a loan. Don’t forget though – if you already have another mortgage in place, you will have to settle that first using the money that will be made available to you in your reverse home loan, before being allowed to access the balance of the funds.
Ways of using your money
What makes a reverse mortgage particularly useful, is that the money can be made available to you in a multitude of ways. The first way is to make it available like a line of credit, where you can access smaller amounts of the money as and when you need it.
Although this might seem like a really useful way of doing things, there are other ways available to you, depending on your needs. You could opt for a single bulk payment where you take receipt of the entire sum in one go, or you could split it up into monthly payments of equal value for as long as the loan is valid. Many people prefer this option as it gives them some form of predictability, and the money behaves much like a salary would have while they were still working, before retirement.
*This is a compensated post and I received a small payment to bring you this valuable information.