Choosing which of the four reverse mortgage payment options is best can be tricky business. This article will help you decide which option or combination of options is best.
Which Is the Best Reverse Mortgage Payment Option?
Four Ways To Take Equity Payments Using A Reverse Mortgage
- Term - Equal monthly payments for a specified period of time
- Tenure - Equal monthly payments for life
- Lump Sum - Distributes most or all of the equity available up front, usually to pay debt
- Line Of Credit - Equity available at will using check book, Visa / debit card, or bank transaction
More about the four payment types.
An experienced reverse mortgage lender will design an equity payment plan that fits your needs precisely using one, or a combination of the possible payment options. Many seniors have benefited from combining more than one payment option. Read through the following examples to get an idea of how combining the equity payment options might help you.
Lump Sum and a Line Of Credit
Ideally, a reverse mortgage is attached to a house that is owned free and clear. But, this does not have to be the case. There just needs to be sufficient equity. If you have a small mortgage balance, you can take a lump sum up front to pay off the existing mortgage and end monthly mortgage payments. If the home is owned free and clear, you may want to take a lump sum to pay off high-interest debts or medical bills. With the remaining equity, you can have a line of credit available for unexpected expenses.
Term Payments and a Line Of Credit
If you only need monthly equity payments for a number of months, the term payment option can work. For example, get $500 a month for 60 months. Perhaps you would like to delay collecting Social Security benefits or you are expecting an inheritance. You need to supplement your current income until another source of income begins. Be sure that at the end of the term you have another source of income to meet expenses. With the remaining equity, you can have a line of credit available for emergencies.
Lump Sum and Tenure
A reverse mortgage counselor may advise you to take a lump sum to pay off high-interest debts and then collect monthly equity payments for the rest of your life. If your current income is not sufficient, paying debts and having an additional amount each month for life could make your golden years more enjoyable. Because the reverse mortgage lender is committing to a monthly payment for life, tenure payments are likely to be much lower than term payments. The reverse mortgage lender does not know when your life will end, and must be very conservative with this payment choice.
Hopefully these examples have you thinking about how one or a combination of the four possible equity payment options available on a reverse mortgage can help you. Consult with a reverse mortgage lender or a HUD counselor for more information and advice.
Renee Morgan
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