Retirement can last at least 20 years. It’s an entire lifetime. And although this period of our lives should be one of happiness and relaxation, for a lot of people it is not. The main reason for this is the drop in monthly income. Once you retire, you lose your salary, which is the main source of income for most people. This means that you may have to change your lifestyle, but only if you can’t find other sources of income that can replace your salary. Fortunately, seniors who have little or no assets outside of owning their homes have access to one good source of retirement income. It’s called a reverse mortgage.
How a reverse mortgage works
A reverse mortgage is only available if you are at least 62 years old. It allows you, the homeowner, to borrow against the equity in your home and to produce extra retirement income. The good thing about it is that you don’t have to repay the money until you either sell your home, move to another place or until you die. After the death of the borrower, the debt will be repaid by the estate. Usually, the lender sells the home to pay off the debt.
How much you can borrow
The amount that you can borrow depends on your age and on the value of your home. Reverse mortgages are constructed in such a way that the loan and the interest from it do not exceed the home’s value. Another thing that sets reverse mortgages aside from regular mortgages is the fact that the borrower can choose how to get the loan. You can either have a monthly term payment, a monthly tenure payment, a line of credit, a lump-sum check, or a combination of monthly payments and a line of credit.
Of course, there are also some downsides to reverse mortgages. If the homeowner has no other assets besides the home, once he or she dies, the property will go to the lender. Thus, the homeowner’s heirs will get nothing, unless they agree to pay back the loan.
Additionally, reverse mortgages can include high loan origination fees, closing costs, mortgage insurance and monthly service fees. And, once you get a reverse mortgage on your home, it will be difficult to sell or to rent it.