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:
Number one is for the mortgage company to deposit a large glut of money right into the borrower's bank account. The borrower can use this lump sum option to pull out any amount at or less than the mortgage companie's alottment.
Number 2 is for the borrower to receive a monthly payment. The borrower may determine the amount, which may have an end date when the money runs out, or the bank may set a number which lasts in perpetuity.
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.
Something to note about the line is it actually accrues interest and grows for the borrower's benefit, while money is in the line of credit.
The last option is a combination of the forementioned options.
If we look more closely at my prospective borrower we can see that his best choice was a simple line of credit or a monthly stipend rather than the lump sum draw. He didn't need it, so why take that money out only to have all that extra interest accrue against the home's equity.
Different choices exist because we all have unique situations.
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:
Number one is for the mortgage company to deposit a large glut of money right into the borrower's bank account. The borrower can use this lump sum option to pull out any amount at or less than the mortgage companie's alottment.
Number 2 is for the borrower to receive a monthly payment. The borrower may determine the amount, which may have an end date when the money runs out, or the bank may set a number which lasts in perpetuity.
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.
Something to note about the line is it actually accrues interest and grows for the borrower's benefit, while money is in the line of credit.
The last option is a combination of the forementioned options.
If we look more closely at my prospective borrower we can see that his best choice was a simple line of credit or a monthly stipend rather than the lump sum draw. He didn't need it, so why take that money out only to have all that extra interest accrue against the home's equity.
Different choices exist because we all have unique situations.
posted by Credit Counseling at
10:45 PM
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