I had an senior reverse mortgage prospect contact me last Tuesday. He claimed his property was worth a certain amount and wanted to know how much money we would lend him.
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.
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.
For reverse mortgages borrowers have four ways to draw upon the money alots them. My guy on the phone chose the one most likely to hurt his financial 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.
Number 2 is for the borrower to receive a monthly payment. The borrower may determine the amount, which may have an end date when the money runs out, or the bank may set a number which lasts in perpetuity.
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.
Something to note about the line is it actually accrues interest and grows for the borrower's benefit, while money is in the line of credit.
The last option is a combination of the forementioned options.
If we look more closely at my prospective borrower we can see that his best choice was a simple line of credit or a monthly stipend rather than the lump sum draw. He didn't need it, so why take that money out only to have all that extra interest accrue against the home's equity.
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.
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.
For reverse mortgages borrowers have four ways to draw upon the money alots them. My guy on the phone chose the one most likely to hurt his financial 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.
Number 2 is for the borrower to receive a monthly payment. The borrower may determine the amount, which may have an end date when the money runs out, or the bank may set a number which lasts in perpetuity.
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.
Something to note about the line is it actually accrues interest and grows for the borrower's benefit, while money is in the line of credit.
The last option is a combination of the forementioned options.
If we look more closely at my prospective borrower we can see that his best choice was a simple line of credit or a monthly stipend rather than the lump sum draw. He didn't need it, so why take that money out only to have all that extra interest accrue against the home's equity.
The point is it is all situational. Your situation determines the best choice for you.
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