After retirement, many homeowners may be looking for ways to pay for all of their expenses. This is becoming more difficult in our current economy due to certain decreasing government benefits and unexpected pitfalls. Homeowners may be less prepared for retirement than they expected.

The Center for Retirement Research discovered that more than 60% of households are not prepared for retirement when it comes to their finances. Their research found that if retired home owners do not use the available equity in their homes, they are 10% more likely to be at risk for being financially unprepared. A reverse mortgage loan could be the answer home owners are looking for because it can supplement their current incomes and allow them to live the lifestyles they had prior to retirement.

How the Loan Works

Reverse mortgage loans are designed to give home owners financial security and independence after retirement. This type of financing is unique because home owners do not have to make any monthly mortgage payments. This is one less payment home owners are responsible for, and it allows them to put their money toward other required expenses or pleasure. As long as the homeowner lives in the home and meets the loan requirements, he or she will not have to make any payments on the loan.

If a homeowner has sufficient equity in his or her home, which is determined by an appraisal, that equity can be converted into cash. There are no restrictions on how the money is used, but home owners often use the money to supplement their incomes. The amount of money a home owner can receive depends on his or her age, the value of the home, and current interest rates. The home owner can choose to receive the money in a lump sum, a line of credit, monthly payment, or a customized option that combines some of the options listed above.

In most cases with this type of loan, the homeowner will not owe more than the value of the home once he or she no longer occupies the residence. The loan will be repaid using the proceeds from the sale of the home. But, on the rare occasion when the loan balance exceeds the value of the home and the home owner or home owner’s heirs wish to retain ownership of the home, they will have to pay off the full balance of the loan.

Eligibility and Requirements

To be eligible for this type of financing, the homeowner must be at least 62 years old and must be financing his or her primary residence. In order to meet the requirements of the loan, a homeowner must stay up to date on homeowner’s insurance, property taxes, and home repairs. If any of these is not kept current, the homeowner will be required to pay back the loan in full.

All home owners wishing to finance their homes with this loan will be required to attend reverse mortgage loan counseling before they can apply. The purpose of this counseling is to properly educate borrowers about this type of loan to determine if it is the best financing option for their situation. The counselor should inform the borrowers about all the costs associated with the loan and should be able to answer any questions borrowers have.

Consider a Reverse Mortgage Loan when Financing your Home

This type of financing is not right for everyone, so it is important to understand the loan requirements and outcome. This loan will reduce the amount of equity in the home and will cause the homeowner to accumulate debt over time. But for many homeowners, the loan benefits far outweigh the cons, making these loans the best solution for their financial needs.

Retirement is a time to be enjoyed, and no one wants to be financially unprepared. Homeowners can use reverse mortgage loans to supplement their incomes and to live the lives they desire post-retirement.

Victoria Belle-Miller is the newest member of the Senior Reverse Mortgage writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the team and a valuable source of sound mortgage advice.

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