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Wrapping your head around reverse mortgages

Author Contributing Authors
Submitted 08-07-2020

Retirement always sounds like a good idea on paper, but retirement with a little spending money sounds better. You will not be the first person to have wondered how to free up some more money for use during their retirement. A retirement home loan, also known as a reverse mortgage, is a perfect solution, exclusive to those of retirement age. Here’s a breakdown of everything you need to know about this unique kind of loan.

Payback time 

When it comes to paying back your loan, you have far more time to pay back a reverse home loan than you do for a regular mortgage. A reverse home loan is designed to provide you with some backup cash during your retirement, by giving you back part of the total value of your home. The payback terms are dictated by how long you choose to live in the house. If you choose to leave the house after a year of taking out the loan, the repayment will be due then. If you choose to leave 10 years after taking out the loan, that is when the repayment will be due. The flexible nature of this condition gives you a lot of control over the loan period and its repayment.

Don’t forget the basics
Although this may seem idyllic at the outset, you do need to understand that, as with any loan, you will still be subject to paying interest on the money you borrowed. If you are unable to pay back the loan amount, including its interest, after the loan period has ended (when you choose to leave the house), the house will be sold to cover outstanding costs. 

Therefore, it is important to calculate the current value of your home accurately before taking on a loan. Your lender will assist you in determining this value using a reverse a home loan calculator, which is a tool that helps to determine the value of your house by taking factors such as age, location, and condition into account. Because you are prohibited by law to borrow the full value of your home, this calculator will help to determine what percentage of the total value you are eligible for, in the form of a loan.

Taking your money into your own hands

Once your lender has approved your application, you will need to choose how you will take delivery of the funds. Luckily, there are several available options when it comes to deciding how you want to borrow it. You could set up the payments as recurring episodes, like when you received a monthly salary. It helps to create predictability around monthly income and you’ll know what you have to spend in a month.

Another popular option is to set up the funding as a line of credit, so that you can access the money as and when you need it. Finally, you could opt to have it paid out as a single bulk payment, which means that you will have the full amount available to spend at any point as you require.