Reverse Mortgage Option Exploration
There are a lot of things you could do when you retire, but not all of them will make you money. In fact, a lot of them will cause you to spend more money. From medical bills to fun vacations, it all costs. That is why having your income greatly reduced in retirement is no picnic. If that lack of funding has you concerned, a little reverse mortgage option exploration may be in order.
The Point of a Reverse Mortgage
A reverse mortgage is a loan only available when you are at least age 62. That is why it is also known as a retirement home loan. It has only one purpose, which is to make your retirement easier. The reverse mortgage was designed to allow you to stay in your home while essentially using it as an asset for spending. It lets you borrow the money unhindered for years, as long as the house remains in your possession, as well as still functions as your main residence.
Reverse Mortgage Borrowing Caps and Calculation Tools
There are a lot of aspects of reverse mortgages you have to know about before you have one. Among the most important is how the reverse mortgage total amount is calculated. There are online reverse mortgage calculators used to figure that out. Those precise reverse-mortgages calculators figure out the total you can borrow based on caps placed by the government. They also take into account other aspects of your current home value. That way you and your lender can know how much you are really able to borrow.
You can never borrow the total equity your home has, regardless of what that value is. However, once the reverse mortgage calculator does its job, you can borrow a fair amount of it. That established number can change as federal regulations do. That is why it is always figured based on the current standards when you apply. Once you know the total amount available, you also have to consider closing costs of reverse loans. Those and related fees are extracted when you sign the agreement. Only what remains is cash you can spend for your own purposes.
The Small Versus Large Reverse Mortgage Choice
When thinking about reverse mortgage options, you need to know there are small and large reverse mortgages available. The larger of the two is called a jumbo reverse loan. Smaller loans are meant for smaller homes. If your home is larger, it may have a value beyond the cap for a regular reverse mortgage. In such a case, a jumbo mortgage would be more appropriate for you.
Private Versus Federal Reverse Mortgage Loans
Another option you have when choosing a reverse mortgage is to get one from a local or private lender as opposed to the Department of Housing and Urban Development (HUD) or another federal agency. Federal reverse mortgages go by the acronym “HECMs.” That means “home equity conversion mortgages.” To apply for an HECM, you must meet similar standards to those you must meet when applying for a regular reverse loan. The biggest difference is an HECM is insured at the federal level.
A private (proprietary) reverse mortgage does not have all the same rules as a federal loan. However, it is subject to the same limitations on how much can be borrowed. Sometimes a proprietary loan is better, especially if you already have done business with the bank or credit union previously. However, you also have to look out for rules that are unique to private institutions because they have more leeway to set their own regulations.
Reverse Mortgage Alterations and Agreement Extrication
A last thing to know about your reverse mortgage options is that a reverse mortgage contract used to be more concrete and binding than it currently is. Today, you can choose to pay off a reverse mortgage early if you need to. Although, you may have to pay some fees when doing so. You can also refinance or otherwise alter your contract easier than was once possible. Therefore, you can rest easy when you get a reverse mortgage because you will never be 100 percent locked in.