After a long career of hard work and adapting to new situation over and over again, who does not look forward to a wonderful retirement during which they can relax and enjoy the fruits of their labour?
Unfortunately, retirement has a way of also coming with a reduction in disposable income, and if you do not have a backup plan in place, it can give rise to a multitude of incredibly stressful situations when your retirement time arrives. If you are fortunate enough to own your own property, you will be glad to know that it can be used to your advantage in your retirement days, without you having to resort to rebonding your home. Enter the reverse mortgage, and the host of benefits it holds.
When you say Reverse Mortgage, what do you mean?
A traditional loan comes with a rather terrifying set of consequences if you do not adhere to the loan conditions, or default on your agreement. A severely affected credit score, or even something as bad as foreclosure or eviction could be on the menu if you are unable to meet your commitments of your lender.
One of the single most beneficial things about a reverse mortgage is that you are not bound by these strict and limiting conditions, and it gives you enough flexibility to avoid that ever-imposing debt trap that comes with a traditional loan. However, at the end of the day, it is still a loan, and you should be familiar with the restrictions that come with a financial commitment of this nature.
Designed for retirement
Because this kind of loan is pertinently designed for those of retirement age, you will not be able to apply for one if you are younger than 62.
Another condition is that you should be the primary and permanent resident of the home against which you take out the loan, and it should be in your legal possession.
When you apply for the loan, you need to be truly clear in understanding that you will not get the full value of the home in the form of cash. This is due to the fact that government has implemented a set of laws that cap the percentage amount you can borrow, at a certain level. Although this can feel restrictive, it is designed to prevent overborrowing and fraud.
Considerations such as your current financial standing, as well as your home’s age, condition and physical location will be taken into account when your lender uses a tool known as a reverse loan calculator to calculate your loan.
In what form do I receive my money?
When your reverse mortgage comes though, you can take ownership of your money in a number of ways. The most popular methods to set up monthly payments that are paid to you in equal amounts until the funds are exhausted. This creates some form of monthly predictability and allows you to budget and make decisions based on this predictability.
You could also opt for a lump sum payment, or a line of credit.