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One of the most important things you can do for yourself is to start your retirement planning now. No matter how young or old you are, it is a good idea to think about retirement funding and begin preparing for the future, and how you might live after you stop working full time. One of the more interesting items you can add to your retirement plan includes the reverse mortgage.

What is a reverse mortgage?

A reverse mortgage is pretty much what it sounds like. Instead of you making a mortgage payment to a bank or other lender, the lender makes payments to you. These are like mortgage payments to you. However, it is important to note that in order for a reverse mortgage to work for you, you need to have equity in your home. This is a unique kind of mortgage, but it is still a home mortgage loan nevertheless. It WILL have to be paid back.

How a reverse mortgage can add to your retirement funding

Most lenders that offer the reverse mortgage do so with the understanding that you are using the money for retirement. If you have your home mostly paid off, then you probably have a lot of value there. You can get this loan, and it is usually not considered due until you sell the home, or if you stop living in it for more than a year.

You can choose to take your reverse mortgage as a lump sum, or receive payments over a set amount of years. You can choose monthly or quarterly, or work out some other arrangement with your lender.

What you should watch for with a reverse mortgage

When using a reverse mortgage as part of your retirement funding, you should remember that it will need to be paid back. Most of the time this happens after you die, or enter into a long-term care facility. The easiest way to pay the reverse mortgage back is through the sale of your home. So you should be aware that this is not an option for someone who wants to leave the house to his or her heirs.

Another thing to keep in mind is the need for what is known as a “no recourse” clause. This clause says that you and your heirs are only responsible to repay the value of the home. If the home declines in value, this means the bank loses out, not you.

And, don’t forget that because this is a home mortgage loan, there are still loan fees to pay. And many times your reverse mortgage won’t include the property taxes you pay, so you will probably be responsible for those as well.

Tags: reverse mortgage, retirement funding, home mortgage loan, retirement planning,
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