Retirees who need more cash than they have saved up can choose to tap into the equity of their home for less. This is possible by taking out a reverse mortgage. However, not everyone can qualify for this loan so it is best to be educated about the loan before applying for one.
Here are some of the things that borrowers should know:
Age is a Big Factor in Reverse Mortgage
A reverse mortgage is the right option for seniors who have reached the age of 62 and have paid off their home mortgage. A reverse mortgage can provide them with cash that they use for whatever purposes. They can get the money in the form of a lump sum, credit line, monthly payments or a combination of regular payouts or a credit line. With this loan, borrowers don’t have to meet credit or income requirements to qualify.
Moreover, the age of the borrower is one of the determining factors in calculating the amount they can borrow. Older borrowers can get better loan amounts. The calculation of the loan also factors in the fees and interests, which accrue over time, decreasing the equity amount borrowers can get. A mortgage calculator can help borrowers in determining how much loan amount they could get.
Lenders Make Great Offers
The decline of home values and enforcement of stricter lending limits by the Federal Housing Administration has hardly hit the reverse mortgage industry. As a result, lenders want to make up for their business by satisfying investor demand for mortgage securities with government backing and waving upfront charges like origination fees.
Borrowing should be Done Reasonably
Borrowers who pick a lump sum should borrow the full amount they qualify which is almost $200,000 if they are 65 years old and have paid off their $400,000 home. Interest is expected to build on the full amount until the borrower pays off the loan. Those who do not need the full amount can choose monthly payouts or line of credit and pay the interest on the used amount.
As with Other Loans, Reverse Loans are Still Not Cheap
Those who want to borrow $50,000 on a home worth $400,000 as a credit line should be paying $16,0000 in interest and insurance premiums after a couple of years. If they choose to stay in the house for more years, this amount will double or even triple, depending on how long they choose to stay in the home.