At some points in life, we will retire from our careers and jobs. For some individuals, this timeframe is just years away, while it’s a couple of days away for others. Of course, you want to enjoy your vacation in top tourist destinations, take up that cooking course or dance class, spend more time with your grandkids, or even launch a new business. But there is something you need to make most of these plans work – money. Without cash, you can’t live the lifestyle you desire. Hence, you may have to look into various ways to make money.
You may come across several get-rich programs that offer vague promises. For some retirees, taking a traditional loan may be the easy way out. But these options only point to a dead end. In this guide, I will show you how to use your house as financial leverage. And by that, I mean taking a reverse mortgage.
Understanding the History of Reverse Mortgages
Everything has a beginning, including a reverse mortgage. This loan has its origin from Portland, Maine. In 1961, a young man, Nelson Haynes, issued the first official reverse mortgage to Nellie Young, a widower, who also happened to be his high school coach’s wife. He helped her with this loan so she could keep her home. Ever since that time, reverse loans have been of help to millions of homeowners across the globe.
How do you access a reverse mortgage? The process is straightforward. You have to be of age 62 and older and must live in your primary and permanent residence. But that is not all. Your lender will use a reverse loan calculator to determine your eligibility – ability keep to the lender/borrower’s agreement. You should be able to pay your property taxes, home insurance, and maintenance cost.
Additionally, the lender will also evaluate your home equity using the reverse mortgage calculator; this considers your home’s age, location, condition, current market value, and interest. With the results, you will know the available amount left.
Federal Law Regarding Home Equity
As stated by federal law, you can’t take the total amount on your home equity. This regulation is in place to prevent lenders and borrowers from entering into infeasible loan agreements. It is worth mentioning that part of the reverse loan fund goes into paying your existing mortgage (if any). You also have to pay closing fees and costs. Once settled, you can have access to the remaining money.
Receiving Your Reverse Mortgage Funds
When applying for a reverse mortgage, you can discuss how you want to receive your money with your lender. There are three available options:
- Set it as a line of credit
- Receive it in a lump sum
- Set it as a monthly payment plan
The first option is ideal for retirees who intend to borrow money from time to time. This alternative works like a credit facility. However, bear in mind that there is a borrowing cap. If this financial payment plan isn’t your choice, you can receive your reverse loan fund as a lump sum – ideal if you have several needs to meet at once. On the other hand, if you prefer the monthly income plan, then the third option is the way to go. It helps you to create monthly budgets and analyze the inflow of cash.