This guest post on the type of mortgage you need is aimed at readers from the USA.
You might already know you need to find a way to get more cash when you retire. It’s possible you are already considering getting a home mortgage. If not, you might be wise to at least consider it. A mortgage is a good way to get ready cash using an asset you already have. However, first you need to ask yourself, “What kind of mortgage do I need?”
The two major home mortgage types
There are two major home mortgage types to consider when you retire. The first is obviously a traditional mortgage. However, as long as you are at least 62 years old (in the USA), you also have the option of a reverse mortgage. A reverse mortgage is one that allows you to borrow money for many years and not repay it on a particular schedule. You also do not owe any of it back early on as you do if you have a traditional mortgage.
A reverse mortgage might sound great to you. However, getting one can be complicated. For example, before you apply for one you need to understand you will have to pay a lot of interest. That’s because a standard mortgage usually lasts for no more than about five years. A reverse mortgage can be double that length or longer, depending on how long you choose to take to repay it.
Exploring the various reverse mortgage categories (for US-based readers)
The reverse mortgage category is further divided into regular (proprietary) reverse mortgages, jumbo reverse mortgages and home equity conversion mortgages (HECMs). A jumbo reverse mortgage is simply one you can take out on a high-value home. It offers higher borrowing caps than a regular reverse mortgage. An HECM is a mortgage you can only get from a federal source, as opposed to a local lender. Otherwise, it is like a proprietary reverse mortgage. However, it is insured federally and may have differing interest rates.
Proprietary reverse loan pros and cons
There are pros and cons of every type of mortgage. In the case of a proprietary reverse loan, you can get it through a local lender you already do business with. Doing so means you already have a relationship with the lender and may be able to take advantage of special perks. However, a proprietary lender is only bound by limited federal laws regarding reverse loans. Such a lender has a lot of freedom regarding the policies implemented surrounding reverse loan agreements. Therefore, you have to read the fine print carefully.
Dealing with two mortgages at once
If you already have a traditional mortgage, you might think you are banned from applying for a reverse loan. However, that is not the case. The only rule is you cannot maintain two mortgages at once over a long time period. You can qualify for a reverse mortgage and use some of those funds to immediately eliminate your traditional mortgage debt, if you want to. Doing so also helps you eliminate the stress of your ongoing traditional mortgage bill.
Living situation requirements for a reverse mortgage
To get a reverse mortgage, you must own and live in the house in question. You cannot apply unless you live there. That is why vacation homes and many types of rental properties do not qualify. However, in some cases you can have a small apartment building and still qualify for a reverse mortgage. You are simply required to be both the owner and one of the residents on the property.
The final comparison of mortgage types
In the final analysis of what type of mortgage you need, there are several factors that definitely matter. They include how long you plan to live in your home, the current value of the home, and what borrowing options you want. Only you can decide if a reverse mortgage is better than a traditional one for you. However, a reverse mortgage counsellor can assist you, if you have difficulty weighing all your options on your own.
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