Many clients often ask us how they should take the proceeds of their reverse mortgage and are looking for advice as to how each of the three options can affect them. We’re going to discuss all three of these options in a three part series called “How should I take my money?”
Today we are going to discuss the Reverse Mortgage Line of Credit (LOC) option for removing the proceeds of a Reverse Mortgage.
When a client chooses to take the Reverse Mortgage Line of Credit they are essentially taking the proceeds from the reverse mortgage and setting them into a virtual checking account that is held by the servicing company. While the funds remain in this account they will be growing at the Credit Line Growth Rate (disclosed in the loan documents) and that interest will accumulate and be tacked on to the balance available for the client to draw. It’s important to realize that the interest “earned” on the line of credit is not yours to take and spend without penalty. Any money that is drawn out of the LOC (Line of Credit), including the accrued interest, will be added on to the principal balance of the loan. When the loan becomes due and payable the full amount of the principal balance will be owed back to the servicer.
Another important part of the LOC is the setup time. Typically, the loan servicing company will need between four and six weeks in order to completely set up a LOC for a closed Reverse Mortgage loan. What does this mean to you? Well, if you know that you can’t access the loan proceeds until 30-45 days after the loan closes it’s always in the client’s best interest to draw out any funds needed at the closing table. This way you will have those funds to use immediately and then once the credit line is set up you will have access to the rest of the funds.
Overall the LOC is a good way to take your funds if you don’t have an immediate need for them or you don’t have a good way to invest them. Please talk to one of our One Reverse licensed professional’s for more information regarding how to take your loan proceeds.