Collaborative Post¦ You can enjoy your retirement or you can stress out about it. Stress is unfortunately more likely if you have financial concerns. A specialised mortgage for retirees called a reverse mortgage can help. However, you may have trouble understanding how it works, especially since there seems to be a language specific to reverse mortgages. Below are some definitions and explanations that will help you learn the language of reverse mortgages.
The “Reverse” Part of Reverse Mortgage Payments
The “reverse” part refers to the mortgage paying you, rather than you paying it. You do have to make payments back on a reverse mortgage eventually. However, a short-term perk of the agreement is you have no mortgage bill to pay. While a traditional mortgage requires a repayment schedule, a reverse mortgage gives you scheduled payments. You repay them in your own time.
Home Equity and Your Reverse Mortgage
The phrase “home equity” is another you hear often when applying for reverse mortgages. Home equity in its simplest form is the cash value of a home at a given time. However, in the reverse mortgage world home equity often refers to the specific amount of that value you can borrow, which is never the full amount.
The home equity you can borrow with one is determined by its market value. Other factors like an existing mortgage you may have might also affect available equity. Additionally, the government regulates accessible home equity amounts for reverse mortgage purposes. To learn about each of those aspects, reverse-loan counseling is recommended. Only an expert can explain all the nuances of the process to you.
How Home Equity Conversion Mortgages Are Related
You may see the term “HECM” when researching reverse mortgages. It stands for “home equity conversion mortgage.” All reverse mortgages are essentially home equity conversion mortgages. However, a loan issued by a private lender is usually just called a reverse mortgage. Only reverse mortgages actually issued by the government are usually called HECMs.
Loan Periods as They Relate to Reverse Mortgages
When considering a mortgage of any type, you need to know about the loan period. The loan period is essentially how long the loan is expected to last. In the case of a traditional mortgage, the loan period is fixed. You have to pay the loan back by the date established. Partial payment deadlines for the duration of the loan period are also fixed.
A reverse mortgage is a much looser contract, at least as far as when the loan must be repaid. There is no fixed loan period to speak of. Instead, the loan period is however long it takes you to repay your debt. That is, as long as you agree not to move out of the home during that time and you also continue to perform proper upkeep on the home.
Defaulting as it Relates to a Reverse Mortgage
The terms “default” or “defaulting” might be familiar to you from the world of traditional home mortgages. To default on such a mortgage usually means to fail to make a payment. Failure to do so can trigger eviction protocols. It is also possible to default on a reverse mortgage, but not in that way because payments are never scheduled in the first place. You can only default on them by violating the terms of the loan in other ways.
How to Address Other Language Concerns
You are bound to encounter other terminology or just aspects of the application process that you do not understand. The best way to address such concerns is to do research before you sign any contracts. Speaking to your adviser can also help clear up any questions you have.
Disclosure: This is a collaborative post.