Learning the Lingo of Reverse Mortgages

Retirement can be a lot of fun. It can also add a lot of financial stress. A reverse mortgage might help you relieve that stress, but only if you are well aware of how the process works from start to finish.

If you apply for a reverse mortgage, you will quickly learn that there seems to almost be a whole other language associated with the process.

Here is some reverse mortgage lingo defined to help you out.

Learning the Lingo of Reverse Mortgages

Getting to the Bottom of the “Reverse” in “Reverse Mortgage

There is a reason a reverse mortgage is actually considered to be reversed. That is it can provide you with ongoing cash to help you make up for the loss of income that often occurs at the time of retirement. A traditional loan provides you with money at first but requires you to pay parts of it back quickly. A reverse loan lets you actually opt to keep receiving money monthly for an extended period of time.

Defining How Home Equity Relates to a Reverse Mortgage

You probably already know that the equity in your home is its cash value, but in the world of reverse mortgages, it’s a bit more complicated. One figure you will hear is your total home equity. But the figure that matters is the portion of that equity you are actually allowed to borrow. That figure is determined by current laws and federal guidelines.

Understanding What a Reverse Mortgage Calculator Does and How it is Used

When you need to determine the amount of home equity you can borrow, there is only one way to do so. You have to get the figure from a reverse mortgage calculator. The online tool known as a calculator for reverse mortgage funds provides a quick way for you and your lender to crunch the numbers and determine an accurate figure. It factors in current standards and variables that are nearly impossible to calculate quickly without it.

Defining the Difference Between a Reverse Mortgage and an HECM

A common acronym in the reverse mortgage world is “HECM.” It stands for “home equity conversion mortgage.” An HECM is very much like a reverse mortgage. The major difference is all such mortgages are government regulated, but only HECMs are actually guaranteed to be insured by the federal government. That is because they are offered through government agencies, rather than local bank branches.

How a Home Equity Line of Credit is Defined

Reverse mortgage applicants often opt to divide the available equity into equal amounts and receive a portion every month. However, a home equity line of credit suits the needs of some retirees better. It allows funds to be doled out only as the borrower requests them. If you want access to fast funds in an emergency, setting up a home equity line of credit when making out the reverse mortgage agreement is one way to accomplish that goal.

How a “Loan Period” for a Reverse Mortgage is Defined

In a traditional mortgage situation, a loan period is usually something like three or five years. It is the total duration of the loan, which is established early on when the contract is signed. A reverse mortgage technically does not have a set loan period. Instead, the definition of “loan period” for a reverse mortgage is either the length of time you choose to take to pay back the loan or the length of time you stay in your home. When you move out, the loan balance is automatically called in.

Making Sure You Know All Necessary Reverse Mortgage Lingo

The terms described above are only part of the lingo associated with reverse mortgages.

The best way to make sure you understand all of that lingo is to talk to a reverse mortgage counselor. Since he or she specializes in reverse mortgages, you can get the full lowdown on the complete process. That also provides you an opportunity to ask any specific questions you have about certain confusing loan terms.

Have you ever done a reverse mortgage? Let me know in the comments, I love hearing from you!

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