Thursday, 5 March 2020

Home Mortgage Options: The Reverse Mortgage*

Retiring is not always as fancy-free as you might want it to be. Money problems can be a source of great worry and stress for you. It is not easy to suddenly no longer have the income you were accustomed to during your working years. A reverse mortgage is a home mortgage option that aims to fix that issue while stressing you out as little as possible.
Photo by Peter Boccia on Unsplash
The Reverse Mortgage U.S. Start - Reverse mortgages have not always existed. In fact, they are relatively new, only getting their start in the U.S. in 1961. At that time, a Maine resident asked a lender for special assistance. The lender took pity on her and developed an arrangement that would let her keep her home and borrow money. Eventually, that concept became the reverse loan for retirees that we know today.

Government Regulation of Reverse Loan Agreements - In its infancy, the reverse mortgage was not well controlled, or even well monitored, by the federal government. However, as word quickly spread and more lenders began offering such assistance, federal rules were established. Today, those rules state you can only borrow up to a certain amount of money with a reverse mortgage, as opposed to borrowing the full exact value of your home.

The reason government lending caps on reverse mortgages exist is primarily protection. The rule helps prevent both you and your lender from entering into an agreement that is unfair or outside the established safety boundaries. However, the government rules also make determining how much you can borrow a bit more tricky. That is why you should not apply for a reverse mortgage thinking you will get all of the value of your home converted to ready cash.

Government Issuance of Reverse Mortgage Contracts - In addition to government reverse mortgage regulations, there are also now reverse mortgages that are fully issued by federal agencies. The Department of Housing and Urban Development and other agencies have the authority to issue such loans. If you apply for one, you are subjected to additional strict federal guidelines. However, you can also take advantage of the fact the loan will be insured by the U.S. government.

Obtaining a Proprietary Reverse Mortgage Instead - Not all reverse mortgages are fully government controlled or offered. Although, all legitimate contracts are subject to some federal guidelines. There are many reverse mortgages offered by banks all across the country. It is likely several of those banks are in your local area. Their loans are called proprietary reverse loans.

Entering into a proprietary reverse mortgage agreement means you agree to the terms established by the lender. Since the lender can make up the rules, other than government imposed lending caps, proprietary loan agreements vary between institutions. You must make sure the agreement you are signing seems fair. To that end, always check the fine print and make sure all fees are clearly delineated for you.

Reverse Mortgages and Loss of Your Home - Your biggest worry when applying for a home mortgage is probably potential inability to pay back the loan. Although the home can be sold when you fail to repay a reverse mortgage, that issue usually does not come into play until after you vacate the house in question. When you move out without repaying the loan balance, the lender initiates the home sale. So you cannot easily be forced out of the home as you might for missing a traditional loan payment.

Making a Total Assessment of Reverse Mortgage Application - Deciding to apply for a reverse mortgage or not requires a full assessment of the terms of the contract, as well as the circumstances facilitating your need for the money. Do you plan to eventually repay what you owe, or are you willing to let the home go in the future? Are you comfortable with the idea of living in the same house for your entire retirement, or at least many years of it? Such questions are important to ask yourself to make sure a reverse mortgage is actually what you need.

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