Pros And Cons Of Reverse Mortgage Payment Choices

Reverse mortgages pros and cons: which of the following payments would work best for you?

• Lump Sum
• Term
• Tenure
• Line of Credit
• Modified Term
• Modified Tenure

Lump Sum - Taking all or part of the available equity in one up front payment. This option would work for paying off an existing mortgage and eliminating monthly payments. You could also use it to consolidate debt. It is likely the most expensive reverse mortgage payment option because you begin paying interest on the whole amount from the beginning--something you want to avoid unless you need the money right away. In addition, some government assistance tied to your assets, and if you take a lump sum but don't spend it, you could find yourself ineligible for these programs.

Term - Reverse mortgages offer monthly payments for a specified length of time or term. If you know you will need money to meet your expenses until another event occurs, this option works best. For example, you take payments from age 62 until you beginning drawing Social Security at age 70.

Tenure - With the tenure option, you get monthly payments for as long as you live in the home. Even if the payments you take exceed the value of the home, you will not be required to move or sell. The reverse mortgage lender is likely to be the most conservative when calculating your available equity using this option.

Line of Credit - This payment option could be the least expensive. If what you need is cash available on an emergency basis, this is the option you might choose. You only pay interest on the amount of money you access.

Modified Term - This is a hybrid option offered by some reverse mortgage lenders. It allows you to take payments for a term, combined with one of the other payment choices. For example, you might choose a lump sum to pay off an existing mortgage and then payments for a specified term using the remaining available equity.

Modified Tenure - Like the modified term option, this is another hybrid. A reverse mortgage lender could help you design a program that includes both a tenure payment and another of the payment options. For example, you could take a lump sum to pay off an existing mortgage and then take the remaining equity in the form of payments for life or a line of credit.

All of these options for taking the proceeds of a reverse mortgage can complicate your decision, but they also allow you to tailor your benefits to suit your circumstances. Reverse mortgage counseling can help you sort through these options and make your best choice.