A Comprehensive Guide to the History and Basics of Reserve Mortgage Applications

3 minutes read

Having a retirement plan is essential to every worker and employee in varying industries. As part of this plan, you need to be financially stable. One tactic most retirees use during their retirement phase is using their homes as collaterals to obtain funds. While this is not a bad idea, it can be catastrophic for a homeowner with no means to pay back the loan. Often, the result is a foreclosure on the home. However, there is a better and safer way to procure a mortgage without having to lose your home – reverse mortgages.

Unlike the traditional home loan, a reverse mortgage gives you more flexibility to get an extra stream of income without risking your home, even though you use it as a collateral. In this guide, I will show you how it works.

What Makes a Reverse Loan Ideal?

A reverse loan makes it impossible for you to owe repayments, unlike the regular mortgage. In actuality, you can defer your payments to a later time that seems convenient. However, the only time you get to pay the loan is when you sell your home and relocate or if you fail to comply with the loan conditions governing the mortgage. The origin of reverse mortgages stems from Portland, Maine, when a lender, known as Nelson Haynes, wrote the first reverse mortgage to the wife of his deceased high school football coach, Nellie Young. This mortgage option helped her stay at home and has since then evolved to cater to the financial needs of several homeowners.

Opting for a Private or Government-backed mortgage

As reverse home loans have evolved over the years, an applicant can obtain a mortgage from either a private lender or a government agency. For the latter, it is known as a home equity conversion mortgage (HECM), while a local lender sees it as a reverse mortgage. For HECMs, they come with government insurance.

How to Obtain Your Funds

At the ending part of your loan application, you have to specify how you wish to take your money, depending on your situation. There are three ways to receive your payment:

  • Set up a line of credit, through which you can take a credit facility whenever you need it. This option is ideal if you have enough money at hand to cater to your needs but will need more money with time.
  • Receive monthly payments that mimic your job paychecks. With this option, you can quickly meet up with everyday living expenses. You will receive a certain amount of money every month consistently as long as there is money in your balance. It is also easier to set up monthly budgets with this payment plan.
  • Receive a lump-sum payment. You can opt for this payment option if you have multiple needs to address at a time. Your lender will deposit the money into your account.

To be eligible for this unique loan, you have to be of age 62 years and older and reside in your home, which is also your permanent place of residence. The lender will consider several factors, including the age, condition, and location of your property. This evaluation will determine the value of your home and what percentage you can receive as your mortgage.

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