Those who are dedicated to work to provide for their families look forward to the day they can retire and enjoy life. Unfortunately, with retirement comes the lack of money. Most individuals decide it’s beneficial to them to take out a reverse mortgage on their home once they retire.
Before you make such a huge and important commitment, you should make it a point to become familiar with the terminology that you may hear when applying or talking about getting a reverse mortgage. Let me take the time to explain some of it to you.
What Does Reverse Mortgage Mean?
You know how you pay for your mortgage each month to the bank? A reverse mortgage is the opposite of this. You would actually receive a monthly payment from the loan once you are approved for it. It is a long-term solution for your financial woes after retirement. As long as you permanently live in the home you are borrowing against, you should have no problem accessing the money.
How Can I Use My Money?
One of the great things about reverse mortgages is that you can gain access to the money in a variety of ways. One option is to take it out as a line of credit. You will be able to use smaller amounts of money whenever you need it.
Another common method is to take out a single payment. This would mean that you get all of your money in a lump sum. On the other hand, you could opt to split up the payments monthly. They would all be of equal value for as long as you have a valid loan. This is the most common method that people use because it gives them better predictability. It acts as a salary, just like you would have if you were still working.
Let’s Talk About The Reverse Mortgage Calculator
The reverse mortgage calculator is what your lender will use to calculate your financial status, which is based on the value of your home as a whole. They have to do this before they can grant you the loan.
There are several factors that contribute to their final decision such as the age of the home, condition of the home, and its physical location. You cannot borrow the complete value of your home’s equity as per federal law. The reverse mortgage calculator will assist you in determining what percentage of the final value you would be able to receive in the loan.
If you already have a mortgage, you will need to pay that off before you can borrow any of the money you may get from the reverse mortgage loan.
Home Equity Conversion Mortgage
The shorter version of this is HECM. The difference between a home equity conversion mortgage and a regular reverse mortgage is slim. The distinguishable factor that sets them apart is that the HECM is issued by a government agency whereas the reverse mortgage is given to you by a lender, such as a bank. The home equity conversion mortgage comes with government insurance, which is what really sets the two apart from one another.