For those of us in our retirement years (or at least approaching it), there are a lot of considerations for us to worry about when it comes to our finances. There are resources out there like social security, of course, but a lot of it comes down to what we put into savings accounts when we were younger.
There is so much press about individual retirement arrangements and get rich quick schemes, but when we need a practical solution to getting liquid cash, what can we do? Something that many homeowners may not be aware of are reverse mortgage loans. If you are not familiar with them, do not worry – I will be explaining how they work today!
Understanding Credit Scores
There is a lot of discussion surrounding them, but I feel like there is not much education regarding what they are and their impact on our lives. You can read a bit about it here, https://www.thebalance.com/what-is-a-credit-score-and-why-is-it-important-4691429, but what else is there? You might be surprised by how much our credit score governs in terms of our lives in retirement.
There are five ranges in terms of score values, going from three hundred to eight hundred and fifty. The bottom tier reflects a very poor credit score, while the top tier reflects a very good one. Most of us who are older are thankful that our past selves did our best to cultivate higher scores, but that is not always possible.
What goes into these numbers? For the most part, it represents things like your payment history, current amount of open accounts, and how long you have had credit history. Taking all of that into account, this score that you end up with does matter.
How do they Relate to Reverse Mortgage Loans?
These are loans that homeowners can make against the equity of their property. Something to note is that this is only available for those that are sixty-two years of age or older. If you are not in that range, it may be time to look for other options for now.
You can get them from a private lender or from a government-insured one. Both are totally valid – the main concern for many people are the reverse mortgages credit score requirements, as many other types of loans require a very high score. So, it is a common misperception that these ones need that as well.
Rather, lenders take a more holistic approach to viewing your credit history. They examine any potential extenuating circumstances, for instance, to determine if you would be a good candidate. More is considered for these than just your FICO score, so bear that in mind if you are worried about having a lower score.
Why Reverse Mortgage Loans?
Now that you understand how these concepts relate, you might be wondering what the purpose of these loans are, anyway. Well, the main reason that people take them out is for improved financial stability and a way to improve their current way of life. Sure, we do have money set aside for our retirements, and there are social programs, but often they turn out to be not enough.
With this type of loan, you can receive your funds in a few different ways. If you are trying to get something done like a large home improvement project, you might select to receive it in a lump sum. That way, you can make any necessary down payments if there are any to get the ball rolling on your project!
Now, if that is not appealing to you, there are also ways you can receive fixed monthly payments. You can find out a bit more about how that works in this article. That is usually ideal for anyone looking to get a steadier stream of cash flow each month. That could be something to think about!
The final way you could have the funds disbursed to you is by having a line of credit. So, in practice, it would operate rather similarly to a credit card. As you can see, there is a lot of flexibility when it comes to reverse mortgage loans, so you do not have to feel trapped in one sort of box in terms of how they work.
Of course, there is also plenty of flexibility regarding what you can use the money for. From anything to day-to-day living expenses to paying for travel, you can do almost anything you want (within reason). They are not overly restrictive and not dedicated to one purpose that you are never allowed to stray from.
That is part of why they are so popular, really. Being able to take out a loan that does not have steep requirements and allows you to have some wiggle room in terms of spending is certainly a viable option for retirees!