Using Reverse Mortgage Cash Out Options Wisely
I had an senior reverse mortgage prospect contact me last Tuesday. He claimed his property was worth a certain amount and wanted to know how much money we would lend him.
I tell him and he's ready to go. Now his plan is take the entire amount, I believe about $134,000, put it in the bank and live off of it while its gaining interest with his bank.
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.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
The 4 options are as follows:
The 1st option is to receive a lump sum. This the option my borrower was looking for, so he thought. A borrower may draw out any denomination less than that which the lender is willing to lend that particular borrower.
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.
In my borrowers case the line of credit option was his best choice because he didn't need a large lump sum up front. He only needed some money from time to time. Additionally, by using the line of credit is interest burden would be kept to a minimum.
It's case by case which you choose to use..
I tell him and he's ready to go. Now his plan is take the entire amount, I believe about $134,000, put it in the bank and live off of it while its gaining interest with his bank.
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.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
The 4 options are as follows:
The 1st option is to receive a lump sum. This the option my borrower was looking for, so he thought. A borrower may draw out any denomination less than that which the lender is willing to lend that particular borrower.
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.
In my borrowers case the line of credit option was his best choice because he didn't need a large lump sum up front. He only needed some money from time to time. Additionally, by using the line of credit is interest burden would be kept to a minimum.
It's case by case which you choose to use..
posted by Credit Counseling at
10:57 PM
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