There is a myth that retirement is always relaxing. The truth is it can be anything but, especially when money is a major source of concern. A reverse mortgage can potentially help. You have probably heard rumours about how can be the best retirement home mortgage. But which rumours are actually true? Let's debunk reverse mortgage rumours to find out.
Rumour: A Reverse Mortgage Pays You
You have to make payments to reduce the amount you owe on a traditional mortgage, but the rumour says a reverse mortgage pays you. Well, that is absolutely true. A reverse mortgage is designed to provide you with money to use throughout your retirement. It does not require restitution from you at regular intervals.
Rumour: A Reverse Mortgage Has No Loan Period
The loan period of a regular home mortgage loan agreement is often five years. Although, it can be longer or shorter. That is the time you have in which to fully return the money with interest to the lender. Rumour has it that a reverse mortgage has no loan period. That is sort of half true.
The loan period of a reverse mortgage is not set at the time the loan agreement is finalised, but it does exist because the loan eventually is due to be repaid. The difference is you somewhat control the loan period length when you apply for a refinance reverse mortgage. That is because the agreement stays active until you either leave the home, repay the balance or violate the loan terms. For example, not paying your property taxes is a violation.
Rumour: You Can Spend Reverse Mortgage Funds on anything.
Another rumour is you can spend reverse mortgage funds on anything. That rumour is more or less true. There are no restrictions regarding how you can spend money that is issued to you. However, some of the mortgage funds may never be issued to you. That is because they may be deducted in the beginning to cover mortgage-related fees. Some may also be used to immediately pay off a standard mortgage, if you had one initially.
Rumour: A Reverse Mortgage is “Free and Clear”
A reverse mortgage is free and clear in a certain sense. That is you can be at ease about how you spend the funds because there are no immediate repercussions. However, there are long-term consequences of applying for a reverse loan. One such consequence is being somewhat tied to your home. You cannot move and keep the agreement active.
A reverse mortgage is also not totally free and clear in the sense that it does accumulate interest like any other mortgage. That means, when you eventually pay it back, you pay more than you borrow. Additionally, if you stop living in the home and do not pay the balance, the home is sold off. Family members who do not sign the initial agreement are not allowed to continue living there.
Rumour: Reverse Mortgage Payments to You Like Working Income
The funds you receive through a reverse mortgage are somewhat like working income, at least if you request monthly instalment payments from the account. However, the amount you receive will not be the same as you received while working. Also, the checks will only come until funds are exhausted. Therefore, you cannot rely on them forever.
Rumour: Applying for a Reverse Mortgage is an Easy Decision
Applying for a reverse mortgage is far from an easy decision. There are many factors to consider. However, the debunked rumours above should make the decision easier. It may also help to speak to a specialist in reverse mortgages to get additional questions answered. No matter what, make sure you are fully comfortable with the reverse mortgage before signing a loan contract.