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Wednesday, November 4, 2020

Calculating Your Reverse Mortgage Rate – Why it is Important

You may have thought to yourself that retirement is around the corner, and you have to come up with more income streams. At that point, you may not receive your monthly pay checks anymore. How do you not just survive but also live your best life as a retiree? One way to go is to apply for a reverse mortgage. “Is this not the same as a traditional home loan?” you may ask. Of course, not. Even though they both share similarities, a reverse loan has more flexibility that will benefit you in the long run. So, let me brief you on everything you need to know about this mortgage.

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Private, Single-Purpose Reverse Mortgage vs. HECMs 

You can access two types of reverse mortgages: a private, single-purpose reverse mortgage and a Home Equity Conversion Mortgage (HECM). You can apply for the first mortgage from a private lender, an example being a financial institution. On the other hand, HECMs are government-insured. In other words, government agencies provide this loan to borrowers (homeowners). In the United States, you can obtain this mortgage through the Department of Housing and Urban Development (HUD).

Before you apply for any of these mortgages, your home must meet the requirements. For one, it must be your primary and permanent residence – no rentals or resorts. If you have a building with multiple apartments, you have to make one of the units your “home.” With this condition, you cannot qualify for a reverse mortgage.

Your Home Equity Counts

Even though you have a home where you reside primarily and permanently, its value is also essential in determining the amount you receive from your lender. As required by federal law, you can’t borrow your home’s total equity, only a significant percentage. Your lender will determine the amount using a reverse mortgage calculator. Some other aspects they will consider are the age of your home, its location, your age, and creditworthiness. These factors will influence the final estimations.

Speaking of age, you have to be at least 62 to qualify for a reverse mortgage; that is why most people refer to it as a retirement loan. Once you are eligible for this loan and the funds are ready, you have to pay off any outstanding mortgage (if any) and the closing costs and fees.

Accessing Your Reverse Mortgage Funds

You can receive your reverse mortgage funds through three main ways. Your lender will provide you with these different methods during the signup process. To begin with, you can receive your money in a lump sum. This option is ideal for those who have several needs to cater to at the moment. With the funds received, they can address them. Another method is to set it up as a line of credit. Consider this as a credit facility that provides you financial help when you need it. However, there is a limit to the amount you can borrow. Finally, you can receive your reverse mortgage fund in the form of regular payments. As such, you collect a monthly paycheck like you would during your service years.

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