Home » Thinking ahead – How can a reverse mortgage help in my retirement?

Thinking ahead – How can a reverse mortgage help in my retirement?

This is a collaborative post. So I may have received payment for including one or more of the links it contains about reverse mortgages and kitchen units.

It might be a long way off, but the sensible people amongst us have a plan for their retirement.

Whether it’s spending time with the grandchildren (that we probably don’t even have yet!), learning new skills or hobbies, doing up your house or finally installing your dream kitchen units from Kitchen Warehouse, or cruising around the world, it’s probably crossed our minds at some point.

Retirement should be a time to look forward to and not a phase of your life that should come with financial stresses.  Reverse home loan is a valuable tool that those of retirement age can use as part of their retirement financial strategy. It can help free up some cash that you need to make those dreams come true. Keen to find out more about the benefits of reverse mortgages? Here are the basics.

It comes in different categories

The two main categories under which a reverse mortgage can be taken out is a private reverse mortgage and a state-insured reverse mortgage. Or to be more specific (and jargonistic), a federal housing administration-insured reverse mortgage, or home equity conversion mortgage, commonly known as an HECM.

An HECM loan is insured by the Federal Government, and comes with the perks of specific rules and regulations that protect the loan holder. These regulations include that you will never owe more than your house is worth. Little loan is guaranteed to keep providing you with proceeds even if the lender goes bankrupt. And this kind of loan also provides your spouse or other entitled persons with specific protections.

What is the difference between a reverse mortgage and a normal home mortgage in retirement?

You take out a traditional loan of any kind, whether a personal loan, student loan, or a home loan, you will need to make regular monthly instalments to the lender in order to pay back the loan. If you’re considering a normal mortgage, try this mortgage calculator. In the case of a reverse mortgage, the reverse mortgage lender makes payments to you, based on the value of your house. You can take receipt of your money in one of many ways. From taking a lump sum payout upfront, to making the money available as a line of credit. Or even as an ongoing payment on a monthly term basis.

How do I qualify?

To be able to apply for a reverse mortgage, you need to be at least 62 years old. The property against which you take out the loan should be your primary and permanent residence. Additionally, your home should have a high enough value, in order to provide enough equity for the loan. The amount for which you are approved in the form of a home loan is based on the following criteria. The age of the youngest homeowner, what the house is valued at, whether there are existing home loans in place, and what the current interest rate is. 

Is your house in order for retirement? 

The home itself is also subject to certain borrowing criteria. You may not take out a reverse home loan against a rental or a holiday home. And your repayments on your property taxes and insurance should be up to date. 

If you are on or near the applicable retirement age, why not consider a reverse mortgage. It can be an effective way of managing your financial challenges during retirement? And if you’re way off retirement (sadly), then why not chat to your parents about it?

Featured Photo by Tierra Mallorca on Unsplash

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