Reverse Mortgage Payment Options

The options for taking the proceeds of your reverse mortgage all have pros and cons. Here's a quick rundown.

Term - The term payment option provides you with a set amount every month for a specified period of time. For example, you might get $500 a month for 60 months. Pro:This payment option works well for people who have another source of income in their future, such as, an inheritance or Social Security. You might benefit from delaying Social Security payments and living off the equity in your home for a few years. Choosing a set term instead of a lifetime benefit gets you larger payments. Con: If your plan for the future changes, you may be left without income and without equity.

Tenure - The tenure payment option provides you with monthly equity payments for life. Reverse mortgage lenders determine payment based on your age, home equity, and current interest rates. Pro:Your payments are guaranteed for as long as you live in your home. Con: You don't get the maximum payment amount using this option. A reverse mortgage does not have to be repaid in your lifetime, as long as the home is your primary residence. Therefore, the lender will have to be very conservative with this payment option.

Lump Sum - You get the full loan amount at closing. Pro: This payment choice works well for seniors looking to pay off debts or end monthly mortgage payments. It can also be used to purchase a new home. Con: Consider the lump sum option very carefully. This will likely be the most expensive of all the payment choices. Because paying off a reverse mortgage is delayed, usually until your death, you will begin to pay interest upon interest on the entire loan amount from day one.

Line Of Credit - You get a credit line that an actually increase over time as your home appreciates. Pro: This could be the cheapest option. If you use the credit line conservatively, you could pay the least in interest using this method. Reverse mortgage guidelines make is easier for seniors to qualify for a reverse mortgage vs. a traditional mortgage. If you are unable to qualify for a traditional home equity loan, this option may work for you. Con: A traditional home equity loan would be even cheaper, but you would have to prove income and have good credit to qualify.