Applying for a Reverse Mortgage for Extra Retirement Income

Retirement can be a time full of relaxation and enjoyment. However, it can also be a time of financial stress, especially if your income is far less than you are used to. When you are suddenly forced to live on a fixed retirement income you may think you have to reevaluate your lifestyle choices quite a bit.  However, you do have another option. You can choose to turn part of the equity of your home into additional income.

How Much Money You Can Borrow with a Reverse Mortgage

“Home equity conversion mortgage,” or “HECM,” is another name for a reverse mortgage. When trying to figure out how much money you can borrow – a reverse mortgage calculator can help. It is a special tool that can calculate the exact value based on a predetermined formula. The formula takes federal HECM guidelines into account. Those guidelines exist to prevent you from borrowing more than a safe amount. They can also protect your lender.

The reverse mortgage formula only allows a certain percentage of the home’s equity to be borrowed. But that percentage can change based on how large your home is and the condition it is in. A reverse mortgage calculator is designed to factor in those variables and provide a fairly accurate estimate of the allowable reverse mortgage value of the borrowed equity.

Reverse Mortgage and Home Ownership Rules

You may be concerned about taking out a traditional loan during retirement for two main reasons. First, you may not want an additional bill to pay each month. Second, you may be worried about the possibility of eviction if you are unable to make your loan payments on time. Both of those problems can be avoided when you take out a reverse mortgage. You will not have a monthly repayment schedule. Also, ownership of the home will remain with you. At no point can the lender evict you. However, the lender can insist on repayment if you vacate the property for any reason.

The Reverse Mortgage Payment Selection Process

Typically, reverse loan payments are doled out to recipients in monthly allotments. Each payment is for a set, steady amount determined at the time of the reverse loan agreement signing. However, it is possible to apply for a reverse mortgage and request to receive the funds by a different payment method. If you do so, you can choose from one payment of a large amount or a line of credit attached to your home equity. If you choose the latter, you can borrow against your home equity on an as needed basis until you have met your borrowing limit.

How Repayment of a Reverse Mortgage Occurs

Repaying a reverse mortgage is a very flexible process. In fact, you may never be required to fully repay the balance you owe. However, you are required to use the home as your primary residence until the loan is repaid. If at any time you no longer live there either the loan must be paid back in full or the home can be sold. However, if a balance still exists after the home sale it will be erased by the lender. Other assets, such as vehicles, are not attached to the agreement.

Reverse Mortgage Interest and Other Costs

A reverse mortgage accrues interest over time. That interest must be paid back for you to completely pay off the mortgage. Additionally, you will have to pay closing costs and other processing charges when you are approved for the loan. However, your lender will take those fees out of the money you are eligible to borrow. Therefore, the total you can borrow will be reduced accordingly.

Image via Pixabay / nattanan23

  • For a senior without a great attachment to their home and a need for funds this sounds like a way of doing it depending on the percentage they will give. My father thought about this couldn’t bare the idea of the farm not staying in the family.

  • I can see how this can be helpful for seniors who need extra retirement income. I’m not sure I could do it but I’m sure it has saved those who need the income.

  • This is something to seriously think about. I do not want to see myself during my retirement years without enough finances to support my basic needs. Thanks for the information you shared in this post. I will discuss this with my husband.

  • I think this is an interesting options for some seniors but it does require research. You do want to make sure it is the right decision for you and your home.

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