How to Receive Money from Reverse Mortgage
A senior gentleman called me last Friday. He wanted to discuss reverse mortgage options, in particular he wanted to know a dollar figure we might loan on his home given it's current value.
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.
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.
His home is owned free and clear. All he needs is an occasional draw of some kind to get him through. He is not extravagant in any way.
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 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.
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.
The 3rd choice is to opt for a line of credit. In this circumstance the lender allows the borrower to pull money out on an as needed basis. Unused money does not accrue interest against the home's value. For this reason this third option is a very popular choice.
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 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.
The point is it is all situational. Your situation determines the best choice for you.
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.
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.
His home is owned free and clear. All he needs is an occasional draw of some kind to get him through. He is not extravagant in any way.
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 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.
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.
The 3rd choice is to opt for a line of credit. In this circumstance the lender allows the borrower to pull money out on an as needed basis. Unused money does not accrue interest against the home's value. For this reason this third option is a very popular choice.
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 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.
The point is it is all situational. Your situation determines the best choice for you.
posted by Debt Consolidation Loan at
6:46 PM
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