Nothing sours an otherwise great retirement plan like a lack of money. Because retirement often means a severance from the income stream you will have grown to rely on, it can come as a shock to the system when you find that your old spending patterns are no more. But I am here with some sound advice to make the process easier for you – in a nutshell, I would greatly discourage you from re-mortgaging your home in the traditional manner, and opting for a reverse home loan instead. There are several reasons for this – keep reading to find out why.
It is especially for seniors
Before you can even consider applying, you will have to be of the age of 62 or over. The reason that it is also known as a retirement home loan, is because it is a reserved privilege for seniors. Couples who apply for a reverse home loan together, will have their application assessed based on the age of the younger of the two applicants.
The loan conditions are fairly easy to adhere to and are designed for the greatest convenience of the loan holder. The main condition is that you are expected to live in your home as its permanent resident. This means that you cannot bond a reverse home loan to a holiday home or a rental home, as you need to be its legal registered owner to apply. If you reach the end of the loan period and find yourself unable to replay the balance of the amount owing, the house will be sold to recoup costs.
Government or private route – which is best?
When it comes to applying for a reverse home loan, you can choose to apply through a private lender, or a federal lender. Although there is hardly any difference between the two, the significant difference is that the government-backed route is also insured by government, which is not the case with private lenders. If you take the state-backed route, the loan is known as a Home Equity Conversion Mortgage, where a private loan is known as a reverse, or retirement, mortgage.
Regardless of which option you pursue, your lender will use a reverse mortgage calculator tool to determine not only your home’s value, but also the percentage of that value that you will be able to access in the form of a reverse home loan. Bear in mind that the final amount you can borrow is also affected by how much you still owe on your existing home loan (if any), the age, location and condition of your house, and where it is located.
Accessing your money
After your fees and amounts have been calculated, you can choose whether you want to take delivery of your funds as a single payout, a line of credit, or as regular monthly instalments. Monthly instalments are the most popular option, as this allows the greatest flexibility in terms of monthly budgeting, fluidity, and expectation.