Exploring Your Potential Reverse Mortgage Candidacy

Retiring is not always fun. It can be stressful when you have worries about your income. However, if you own your own home, you may have an easy way to increase that income, at least temporarily. It is called a reverse mortgage. It is a non-traditional home loan designed solely to help retirees or people of retirement age stay in their homes while having money to spend in their golden years. Here is what you need to know about reverse mortgages and how to determine your candidacy for them.

You Must Meet Basic Reverse Mortgage Requirements

There are some basic requirements for getting a reverse mortgage. The biggest is that you must be retired or at the age of retirement. That minimum age is 62. The reason for that requirement is a reverse mortgage is a specific type of mortgage designed to allow retirement comfort without the hassles associated with traditional home loans. Reverse mortgage lenders do not offer reverse mortgages to younger homeowners.

Another requirement is you must own and live in the home. You cannot apply for a mortgage on a building you own while residing elsewhere. That means vacation homes are ineligible for reverse mortgage assistance. If you do own your own home, you must also prove your ability to continue to maintain it, such as by making tax payments. That is because you still own the home throughout the reverse mortgage process.

Your Home Must Have Enough Value to Get a Reverse Mortgage

Another issue affecting your reverse mortgage candidacy is you must own a home with enough value for the loan to work. A reverse mortgage does not allow you to access your full home equity.

A calculator for reverse mortgages determines the portion available to you. The tool is necessary because there are federal restrictions in place governing reverse mortgages. The calculation tool can also help you simplify the process of figuring out the total value of your home. That process involves assessing factors such as its age, size and geographic location of the structure.

You Need to be Prepared to Pay Reverse Mortgage Fees and Interest

A good assessment doesn't guarantee a reverse mortgage is right for you. The amount the reverse mortgage calculator authorizes you to borrow is not the amount you must pay back. You need to understand there are closing costs and fees to be paid. Those are deducted up front before any money is issued to you. More importantly, your reverse mortgage will also accumulate long-term interest. With each passing year, you will owe more back than when you started. Therefore, you must consider your ability to pay the interest back when deciding whether to sign the initial loan agreement.

You Cannot Maintain Two Mortgages at Once

Another thing you need to know before you get a reverse mortgage is you can get one while you have a traditional mortgage. However, you cannot maintain both for a long period. Shortly after signing a reverse mortgage agreement, funds must be removed from the total you are allowed to borrow. Those funds are used to pay off the traditional loan right away. The remaining funds are available to you to make your retirement more financially comfortable.

If the amount you can borrow and the amount needed to pay off the first loan are similar, you may not want a reverse mortgage. The best scenario is using the reverse mortgage to pay the first loan and still have enough left over to spend for other purposes. That can allow you to get out from under your ongoing mortgage bills and get some actual financial relief.