Cashing Out of Reverse Mortgage Intelligently
So, a potential customer calls me the other day and inquires about the reverse mortgage and how much money he can get out of his house assuming it appraises at a certain amount.
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.
The first thing I did was to, in no uncertain terms, tell him he shouldn't do that. How he uses the reverse mortgage is based upon his needs. His needs are basic. He only wants extra money to add to his current income.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
The 4 options are as follows:
The first is simply to do as he wants and take a large lump sum. The lender will set a maximum cash out amount. The borrower can take this amount or a portion thereof out at any time.
The second option is for the lender to send monthly draws to the borrower. The borrower can choose to receive money until death, in which case the lender sets the amount the borrower will receive. Or the borrower can set an amount to be received every month.
The third is taking a line of credit. The line of credit allows the borrower to pull money out of of the line of credit any any time. The benefit of the LOC is that interest is that unused money is not accruing interest against the equity of the home while it is still in the line of credit.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
The last option is a combination of the forementioned options.
In my borrowers case the line of credit option was his best choice because he didn't need a large lump sum up front. He only needed some money from time to time. Additionally, by using the line of credit is interest burden would be kept to a minimum.
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.
The first thing I did was to, in no uncertain terms, tell him he shouldn't do that. How he uses the reverse mortgage is based upon his needs. His needs are basic. He only wants extra money to add to his current income.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
The 4 options are as follows:
The first is simply to do as he wants and take a large lump sum. The lender will set a maximum cash out amount. The borrower can take this amount or a portion thereof out at any time.
The second option is for the lender to send monthly draws to the borrower. The borrower can choose to receive money until death, in which case the lender sets the amount the borrower will receive. Or the borrower can set an amount to be received every month.
The third is taking a line of credit. The line of credit allows the borrower to pull money out of of the line of credit any any time. The benefit of the LOC is that interest is that unused money is not accruing interest against the equity of the home while it is still in the line of credit.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
The last option is a combination of the forementioned options.
In my borrowers case the line of credit option was his best choice because he didn't need a large lump sum up front. He only needed some money from time to time. Additionally, by using the line of credit is interest burden would be kept to a minimum.
The point is it is all situational. Your situation determines the best choice for you.
posted by Debt Consolidation Loan at
10:44 PM
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