Which is the Right Way to Cash Out of Reverse Mortgage
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 calculated a sum of roughly $140,000, and he decided to move forward. His goal was to take the whole amount and plop it into into his local credit union account, live off of needed funds and earn interest on the balance.
The first thing I did was to, in no uncertain terms, tell him he shouldn't do that. How he uses the reverse mortgage is based upon his needs. His needs are basic. He only wants extra money to add to his current income.
He owns his home outright. All he wants is some 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.
My borrower has these four options:
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.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
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.
It's case by case which you choose to use..
I calculated a sum of roughly $140,000, and he decided to move forward. His goal was to take the whole amount and plop it into into his local credit union account, live off of needed funds and earn interest on the balance.
The first thing I did was to, in no uncertain terms, tell him he shouldn't do that. How he uses the reverse mortgage is based upon his needs. His needs are basic. He only wants extra money to add to his current income.
He owns his home outright. All he wants is some 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.
My borrower has these four options:
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.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
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.
It's case by case which you choose to use..
posted by Debt Consolidation Loan at
12:44 AM
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