Reverse mortgages are relatively mysterious home loans. They are only available to you when you reach the age of 62. If you are already 62 years of age or older or about to reach that benchmark you need to familiarize yourself with the history and workings of these unique mortgages. Learning the reverse mortgage basics can help you to understand the intricacies of these unique loans.
The Origins of Reverse Mortgage Agreements
Reverse mortgages originate in the United States in 1961. At that time a woman living in Maine applied to a local lender for a loan after her husband’s income was no longer coming in. Seeing that she was in danger of eviction, the local lender offered a potential solution never before documented. That solution later became known as a reverse mortgage. It allowed the woman to borrow money without having to pay it back immediately.
Today’s reverse mortgages are very similar, but they have undergone several changes over the years. One change is that they can be commonly found everywhere. Also, some are offered by federal organizations like HUD. Those versions are known as home equity conversion mortgages or HECMs. Additionally, all reverse mortgages in the U.S. are now federally regulated and are only given to residents who are 62 years of age or older.
Choosing How to Receive Reverse Mortgage Loan Payments
You can receive reverse mortgage payments in the traditional way, which is by getting a certain sum each month from your lender. That is the traditional method in the sense that it is what gives reverse mortgages their names. If you apply for a traditional mortgage you will have to make payments to the lender monthly instead of receiving them. You may be unable to financially manage that on a fixed retirement income. Therefore, a reverse mortgage might make more sense for you.
A less well known but equally helpful option is to use a reverse mortgage to open a home equity line of credit. By doing so you can request exact amounts of money you need when you need them. However, there will be a maximum amount you can borrow. So, you must check that amount with your lender when you set the line of credit up. You can also take advantage of a third option, which is to request a single payment. Receiving a large sum of money all at once may help you if you encounter a financial hardship during retirement, such as an illness that is expensive to treat.
Using the Reverse Mortgage Cash You Receive
When you receive money from a reverse mortgage through a lump sum, monthly installments, or a line of credit you can do anything you choose with it. As a retiree, you might find it useful to apply the funds to monthly utility payments because you may find your regular monthly income reduced. Medical issues can also increase with age, so you can use the funds to pay debts relating to medical appointments if you choose. Other options include creating home maintenance funds and giving financial help to family members. The choice is entirely yours.
The Long-Term Impact of Applying for a Reverse Mortgage
Neither you nor your spouse or heirs can have other assets taken by your reverse mortgage lender if the loan is not repaid. Also, you cannot be evicted from your home for the duration of the loan as long as you make regular insurance and tax payments. However, your family members can lose the home itself if you move away or pass away without paying off the debt. Therefore, if you intend to leave the home to your heirs, you must plan ahead to make sure your debt can be repaid.