Getting older and reaching retirement age is both good and bad. Having some well-deserved relaxation time goes without saying, but concerns about whether you’ll have enough money to be comfortable when you retire are definitely worth considering. But whether you’re thinking about being able to travel and see some bits of the world you’ve missed, or just spending some time socializing with your family, you need to do as much as you can to ensure your finances are in good order for your retirement.
Why is a reverse mortgage worth considering?
When you reach 62, a new type of borrowing opens up to you as an option – a reverse mortgage. This enables you to bring in a source of income by effectively borrowing against your own home.
It involves you living your home as your main residence, pay taxes and insurance, and continue to maintain your home in good working order. Only at any time you decide to move house, the reverse mortgage then becomes repayable with what you make from the sale of your home.
And not only that, but you also pay off your existing mortgage with the proceeds from the reverse mortgage. Not only is it against the law to have more than one mortgage on a single property, but you can also relax in your retirement knowing your conventional mortgage is settled and you have nothing left to pay on it.
One size fits all
Lenders that offer this type of mortgage will be able to walk you through a reverse mortgage calculator tool, which outlines how much you can borrow according to the size of your home. Reverse mortgages are especially good for smaller homes, as you can free up some cash but still keep living in your home as normal.
Private Reverse or federal mortgage?
This choice is actually a simple one – it depends whether you want your mortgage to be insured federally. If so, a number of federal agencies provide reverse mortgages themselves. These have advantages and disadvantages just like private sector loans.
In addition to the same criteria on how much you can borrow and your eligibility for it, federal lenders have set limits on how much can be borrowed on federal mortgages. But the best way is to talk to a number of private and federal providers, shop around, and see what deal makes the most sense for you.
Anything else to consider?
Understanding how reverse mortgages are calculated is also worth clueing yourself up on before you make your final decision. With a calculator, you can easily see the value you’ll be able to borrow according to the value of your home, and factoring in borrowing limits enforced by the government. Reverse mortgages don’t allow you to borrow the entire value of your home – instead they offer a portion of it. The calculator will also factor in setup fees and administration costs on the loan.
Is it possible to pay reverse mortgages off early?
While you can incur fees for making changes or paying off your mortgage early, it is possible to pay it off early if you would like to. This freedom gives a nice flexibility, and means you are never fully locked into your loan.
Disclosure – this is a collaborative post.