Using Reverse Mortgage Cash Out Options Wisely
So, a potential customer calls me the other day and inquires about the reverse mortgage and how much money he can get out of his house assuming it appraises at a certain amount.
I pulled out my supercomputer, punched in the numbers and out popped about $130,000. He said, "let's do it". So, what he wants to do with the money is take all $130,000 and put into his bank account. He'd make draws thereafter for living expenses.
Well, I had to slow him down a little here and let him know he was making a mistake. He is not an unusual reverse mortgage customer. He simply needs to supplement income for living expenses.
He owns his home outright. All he wants is some supplemental income.
For reverse mortgages borrowers have four ways to draw upon the money alots them. My guy on the phone chose the one most likely to hurt his financial situation.
Here are the four options:
The first is simply to do as he wants and take a large lump sum. The lender will set a maximum cash out amount. The borrower can take this amount or a portion thereof out at any time.
The second option is to take a set monthy draw. In this case the lender sends the borrower a set amount every month. This can be done for a life long period or a period determined by the monthly draw.
A popular option is to use a reverse mortgage line of credit. In this instance the mortgage company alots a loan amount. The borrower simply leaves the alotment in the line of credit until it's needed. The benefit is no interest accues against the home while the money is in the LOC.
Another important point to note about the line of credit is money sitting in the line of credit is accruing interest for the borrower's favor thus increasing borrowing power over time.
The fourth option is to use a combination of any of the three plans just mentioned.
Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn't need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.
It's case by case which you choose to use..
I pulled out my supercomputer, punched in the numbers and out popped about $130,000. He said, "let's do it". So, what he wants to do with the money is take all $130,000 and put into his bank account. He'd make draws thereafter for living expenses.
Well, I had to slow him down a little here and let him know he was making a mistake. He is not an unusual reverse mortgage customer. He simply needs to supplement income for living expenses.
He owns his home outright. All he wants is some supplemental income.
For reverse mortgages borrowers have four ways to draw upon the money alots them. My guy on the phone chose the one most likely to hurt his financial situation.
Here are the four options:
The first is simply to do as he wants and take a large lump sum. The lender will set a maximum cash out amount. The borrower can take this amount or a portion thereof out at any time.
The second option is to take a set monthy draw. In this case the lender sends the borrower a set amount every month. This can be done for a life long period or a period determined by the monthly draw.
A popular option is to use a reverse mortgage line of credit. In this instance the mortgage company alots a loan amount. The borrower simply leaves the alotment in the line of credit until it's needed. The benefit is no interest accues against the home while the money is in the LOC.
Another important point to note about the line of credit is money sitting in the line of credit is accruing interest for the borrower's favor thus increasing borrowing power over time.
The fourth option is to use a combination of any of the three plans just mentioned.
Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn't need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.
It's case by case which you choose to use..
posted by Credit Counseling at
1:11 AM
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