When comparing reverse mortgage loans, it’s important to look at how much cash you can actually get over the life of the loan. The amount you receive depends on how you take the money.

Lump Sum Payout

You can choose to take the cash from a reverse mortgage as a lump sum payment. The money can be spent however your choose, including for household repairs, medical expenses, or travel. You also could choose to invest some of the proceeds in an interest-bearing account such as a certificate of deposit if you want the balance to grow.

Reverse Mortgage Line of Credit

If you take proceeds from a reverse home loan as a line of credit, there are a couple things to keep in mind. First, unlike a lump sum distribution, you only pay interest on amounts that you actually use. Second, an attractive HECM feature is that its credit line grows larger over time. This means that the amount of cash available to you increases until you withdraw the full amount.

For example, if the credit line equals $100,000 and you withdraw $20,000, you would have $80,000 left. But if you leave it alone for a year, your available amount grows by slightly more than the rate being charged on your loan balance–your interest rate plus .5%. If your interest rate were 5.5%% per year, your available credit line in a year would be $84,800 (6% x $80,000 = $4,800).

Term or Tenure Distributions

Under the term option, borrowers may receive monthly payments for a fixed period they select. Under the tenure option, borrowers may receive monthly payments until they no longer occupy the home as a principal residence.
Tenure distributions result in lower monthly payments to you because the lender doesn’t know the duration of the payments–you could conceivably get more than the value of your home and you won’t be responsible for the difference. Term disbursements allow for higher payments.

Finally, as long as you haven’t used up the entire available equity, you can alter the way you receive your funds, so if your circumstances change, your HECM can as well.

This entry was posted on Friday, October 16th, 2009 at 11:20 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.