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So, here you are. After years of working in the labor market, retirement comes knocking at the door. But guess what? There is no financial safety net to fall back on. That 401k plan turned out to be an actual loss, and you are freaking out, with no viable line of action to take. It seems like all that you have worked for has just gone down the drain. There is no need to press the panic button, even though you feel like slamming the heck out of it.
Your family and friends have advised you to remortgage your home. That sounds like a good idea until you find yourself swimming in an ocean of debt. But here is a light at the end of the tunnel; have you ever considered procuring a reverse home loan? What is this strange term? You may ask. Or probably you have heard of it, but do not know how it works. I will guide you on all you need to know about reverse mortgages, including how they work.
Which Reverse Home Loan is Ideal?
A reverse mortgage is a unique type of home loan that provides you with financial security while securing your home as collateral. Unlike the traditional mortgages that need you to meet up with strict monthly repayments, a reverse home loan gives you the flexibility to enjoy a steady source of income and defer your payments for as long as you wish.
When obtaining a reverse mortgage, you may decide to either visit a local lender or a government agency. What do both parties have in common? Basically, they offer the same type of loan. However, for government-approved loans they are known as home equity conversion mortgages (HECMs); this implies that your loan comes with government insurance and more rules as well.
The Prerequisites for Obtaining a Reverse Mortgage
There are specific requirements you have to meet before you become eligible to get a reverse home loan. Here are some of them:
- Be 62 years of age or older.
- Have a permanent place of residence, which also doubles as your home.
- Be creditworthy
Using a reverse loan calculator, a local lender will determine if you can procure the loan and keep up with the property taxes, insurance, and home maintenance costs. There are several ways you can receive your loan payment. One of the options is to have it in monthly payments; this acts like a regular monthly paycheck. You may decide to procure the loan as a lump sum. This option is ideal for individuals with several needs to resolve at a time. The last alternative is to set up your payment as a credit facility. By doing so, you can access your loan at any time.
How Your Home Plays A Vital Role
As I discussed before, your home has to be your permanent residence, and you, as the applicant, must be its legitimate owner. If you have multiple homes that sit on a property, then you have to select one of them as your permanent residence. Ensure that the value of the house is enough to cover for the loan you plan on procuring. That way, you can fully settle the mortgage by selling the home.