A reverse mortgage has proven to be a great solution for many people facing retirement.
Change is inevitable, but particularly so when we go through big life changes, and retirement is no different.
If you are used to receiving a monthly salary, you may experience a certain amount of stress if that has to change.
However, when it comes to enjoying retirement, you want to be sure that your financial affairs are in order.
A reverse mortgage can help ease financial pressure, and here’s how it works:
How Is A Reverse Mortgage Different From A Traditional Loan?
When you take out a regular loan, you will be bound by the terms of the repayment period.
The loan repayments are traditionally calculated based the loan period and the loan’s overall value.
A reverse mortgage, on the other hand, doesn’t come with a repayment schedule.
You will have to live in the house for the duration of the loan period in order to keep the agreement valid.
But you will not be subject to scheduled payments.
How Is My Amount Calculated?
When you apply for a reverse mortgage, the main consideration will be the market value of the house against which you wish to take out the mortgage.
A reverse mortgage calculator is a tool used by banks and lenders that calculates your loan eligibility.
It’s based on a series of factors:
Your existing home loan status and the age of your house. Its physical location and whether your accounts are up to date. That’s just some of the data that the reverse mortgage calculator will take into account.
The calculator will also automatically take into account any government-regulated caps on borrowing that might be applicable.
Qualifying For A Loan And Ways Of Borrowing
A reverse mortgage gives you options when it comes to borrowing. This is where your lifestyle is going to become a factor.
If covering your monthly concerns is important to you, you can take your money in smaller, equal monthly instalments, which you will be entitled to receive until the loan’s equity runs out.
You could also opt for a line of credit.
This is where you just access the money for amounts you need, when you need it.
Finally, there is also the option of being paid out all in one go, as a lump sum.
One of the downsides of reverse mortgages is that you have to be 62 or older to apply. You also need to be compliant with certain requirements of the loan process.
For example, you need to live in the house permanently in order for your application to be considered.
You may not bond the loan to a holiday home, and you will be subject to a range of credit checks.
As long as you permanently live in the house, and you comply with the other factors, your loan will remain valid.
If you are unable to pay back the amount at the end of your loan, your house will have to be sold to recoup the costs to your lender.