Reverse Mortgages Versus Traditional Loans
To retire is to rest and enjoy life, right? Well, not necessarily. Having a shortage of money can actually make you more stressed in retirement than you were while working. Tapping into the equity in your home might relieve that pressure and help you relax more. However, you face a choice between a traditional loan and a reverse mortgage, which becomes available when you reach 62 years of age. A reverse mortgage is often the better choice. Here are some reasons why.
A Traditional Mortgage Does Not Really Pay You
When you apply for a traditional mortgage on your home, you are given the illusion that you are getting money to spend freely. The reality is that you have to start paying part of that money back very soon after you take out the loan on your house. Paying little amounts back to your lender over and over again means you have less to spend. It also can increase your stress due to the extra ongoing mortgage bills.
A reverse mortgage is different because it allows you to receive money and not repay it, yet anyway. It can actually take many years before repayment of what you owe even needs to enter your mind. Eventually the balance is owed, but usually only when you move out of your house. With few exceptions, you can otherwise do what you want financially with no extra obligation or serious immediate consequences.
Large Reverse Mortgages Are Available, if Needed
When you want to apply for a reverse mortgage, one of the first things you need to do is make sure your home value is high enough. But what if that value is actually so high that you do not feel you can get your money's worth out of a regular reverse mortgage? After all, reverse mortgages have upper limits on what can be borrowed. There is actually a solution, if your home value is too high for a regular reverse mortgage. That is to apply for a jumbo reverse loan for retirees, instead. A lender offering a jumbo option can loan you more money. You can still borrow that money in a number of ways, including single amount, credit line, or instalments.
You Can Also Choose from Different Reverse Mortgage Types
Most traditional home mortgages are quite similar to each other. Reverse mortgage options vary more. One big choice you have available is you can get a reverse mortgage from a proprietary (private) lender or a government source. There are several reasons to consider government loans, also called HECMs, as options. First, you will know the source is legitimate. Second, you may benefit from having your home loan federally insured.
A proprietary reverse mortgage can also be legitimate. However, it is not government-insured. It also may be subject to looser rules than a government home loan. The good thing is a proprietary mortgage often comes from a hometown banking institution. You might know the institution has a good reputation, especially if you already bank with it. It is even possible you may personally know and trust staff members at such an institution. You can also show local business support that way.
Other Reverse Mortgage Versus Traditional Loan Comparison Points
Before making your final choice to get a reverse mortgage or not, you also have to consider other comparison points. For example, a traditional mortgage is shorter, so it leaves you the freedom to relocate sooner, if desired. A reverse mortgage more or less locks you into keeping your home for years. The interest factor is also different. Each type of loan has its own interest rate rules. Additionally, a reverse mortgage has higher total interest over time because of its length. Keep all such small details in mind and you can make the most informed decision.
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