Reverse Mortgage vs. Traditional Mortgage: Determining What’s Right for You
Approximately 65 percent of Americans own homes. So it’s no surprise that every year, millions of borrowers take out a traditional mortgage loan to finance a new home purchase. But for older homeowners, there’s another option that can serve as a valuable home-buying tool, as well as a smart strategy for financial planning during retirement — a reverse mortgage loan.
A reverse mortgage can help you leverage the equity you’ve built up in your home to maintain a comfortable retirement, without taking on a new mortgage payment to purchase a home that better fits your retirement needs. While a reverse mortgage is far less common than a traditional mortgage, it may be the wiser choice, depending on where you are in your life.
What’s the same? More than you might think!
Whether you’re taking out a reverse mortgage loan or a traditional loan, these rules still apply for the borrower:
- Property taxes and homeowners insurance must be paid in full
- You’re responsible for basic home maintenance and repairs
As with any loan, lenders will require documentation to ensure a borrower has the resources to meet the financial obligations of the loan, including credit history, income verification, asset verification and more. Despite the documentation, unlike a conventional 15- or 30-year mortgage, there are generally less income or credit requirements for a reverse mortgage loan.
The biggest differentiators
Differences between the loans aren’t necessarily a matter of which option is better, but rather which loan is right for you.
Requirements. Most states require you to be a minimum of 18 years old to take out a traditional loan. While most other requirements vary by lender, borrowers often maintain a credit score of at least 620 and put down a minimum of 3%. For a reverse mortgage loan, the youngest borrower on title must be at least 62 years old, live in the home as their primary residence and have sufficient home equity. Borrowers must also meet financial eligibility criteria as established by HUD, including the completion of HUD-approved reverse mortgage counseling, and have no delinquent federal debt.†
Monthly payments. Unlike a traditional loan, reverse mortgages don’t require monthly payments. You can pay as little or as much as you want — when you want. If you’re staying in your current home, the reverse mortgage actually pays off the traditional mortgage first, and the remaining proceeds can be accessed as a lump sum, monthly payments or a line of credit that’s available if and when you need it.* As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance.
Weighing the risks and rewards
With the facts in hand, you can decide which type of mortgage best suits your needs to live a more comfortable retirement. If you’re considering cashing in on the benefits of a reverse mortgage loan, Reverse Mortgage Funding (RMF) can answer your questions and help decide if it’s the best option for you. To learn more, call RMF today at (888) 277-1567 to schedule a free, in-person appointment with a loan specialist in your area.
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans retire more freely, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating; a 4.7-star / Excellent score on Trustpilot; 4.8 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call 888-277-1567 to speak with a licensed reverse mortgage specialist to learn about our retirement financing products and solutions.
† This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.
*Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.
SEE WHAT FUNDS YOU MAY HAVE AVAILABLE
If you have equity in your home and believe you meet the eligibility requirements, a HECM may be the option that could help you retire smart.