Important Aspects of Reverse Mortgage Applications
If you are worried about maintaining financial stability during retirement you are not alone. Many people struggle with the significant loss of income associated with retiring. One way you can supplement that income is by taking out a reverse mortgage. It is a special kind of home loan reserved solely for applicants who are 62 and older. The biggest benefit from this type of loan is that it does not have to be paid back in the traditional way. Therefore, you can borrow money without feeling financial stress and urgency to repay your debt. Here are some other important aspects of reverse mortgage contracts.
What Do You Need to Get Approved?
Aside from being of age, you obviously must be a homeowner to obtain a reverse mortgage. You must also prove that you live in the home. Despite the fact that you are applying for a reverse mortgage to supplement your income, you must also show a limited degree of financial independence. For example, your reverse mortgage lender will expect you to continue paying your property insurance and other expenses.
Things That Can Cause Reverse Mortgage Defaults
Since reverse mortgages have no scheduled repayment requirements, you cannot easily default on them. However, one term you must follow to prevent default, is that you must stay in the home. If you move out of the home for more than one year, or pass away, the reverse mortgage lender will call in the loan. At that time it must either be paid in full or the property will be sold. Additionally, your family members cannot continue living in the home when you leave unless they pay the balance. If your spouse cosigns the loan, then it cannot be called in until both of you are no longer living or no longer residing in the home. Under any of those circumstances, you or your relatives will be given a set amount of time to make a decision. The standard length of time given by most reverse mortgage lenders is six months.
How Reverse Mortgage Defaults Are Handled
Signing a reverse loan contract does not give the lending institution the right to seize your other assets if the loan comes due and goes unpaid. Additionally, reverse mortgages offer protection for your family since their assets are not part of the loan agreement. Instead, if the home is ever sold and a balance still remains after the sale, that remaining debt will be canceled. If the reverse occurs and the home sale more than covers the remaining balance, the extra money will go to you or your family members.
Things to Know About Reverse Mortgage Renegotiation
Typically your reverse mortgage contract must remain the same for the duration of the mortgage. Therefore, you should discuss your options with a trained reverse mortgage counselor before entering into an agreement. There are some extenuating circumstances where you may be able to add your spouse to your contract after the fact, but you cannot cancel or otherwise renegotiate the loan once the paperwork is signed.
Early Repayment of Reverse Mortgage Balances
Early repayment of reverse mortgage balances is strongly discouraged. In fact, prior to 2012 you would have had to pay high fees for early repayment. Today lenders cannot charge early repayment fees. However, many of them have found legal loopholes allowing them to charge equivalent fees under other names. Therefore, it is best to stick to the agreed upon loan terms.
Your Reverse Mortgage Money Management Options
When taking out a reverse mortgage, you will have almost total control over how the money is managed. The lender will insist that you use some of the income to pay any existing mortgage right away. You may also be required to designate some money for home maintenance in certain circumstances. But typically, you can choose the size of the payment or payments you will receive by selecting a single payment, credit line, or series of ongoing payments.