| Which is the Right Way to Cash Out of Reverse Mortgage

Which is the Right Way to Cash Out of Reverse Mortgage

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 tell him and he’s ready to go. Now his plan is take the entire amount, I believe about $134,000, put it in the bank and live off of it while its gaining interest with his bank.

I say, “slow down there partner, I don’t think this is your best choice”. He has a very typical reverse mortgage need. That is the need for additional funds to cover life expenses.

His home is owned free and clear. All he needs is an occasional draw of some kind to get him through. He is not extravagant in any way.

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:

Number one is for the mortgage company to deposit a large glut of money right into the borrower’s bank account. The borrower can use this lump sum option to pull out any amount at or less than the mortgage companie’s alottment.

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.

A popular option is to use a reverse mortgage line of credit. In this instance the mortgage company alots a loan amount. The borrower simply leaves the alotment in the line of credit until it’s needed. The benefit is no interest accues against the home while the money is in the LOC.

Another important point to note about the line of credit is money sitting in the line of credit is accruing interest for the borrower’s favor thus increasing borrowing power over time.

The last option is a combination of the forementioned options.

Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn’t need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.

It’s case by case which you choose to use..

Learn the 4 choices and nineteen other giant reverse mortgage in Texas to get an excellent Texas reverse mortgage report covering the cash out options and other vital items.

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