Maybe you have seen one of our commercials with Henry Winkler and wonder how you can receive your cash from a reverse mortgage. That is a great question because you can choose to receive your cash from your reverse mortgage in a few different ways. Here are the ways you can receive your funds from a reverse mortgage:
- Term payments – equal sum of money for a fixed period of months or years.
- Tenure payments- like term payments but they do not end until you no longer occupy the home.
- Line of Credit
- A combination of any of the above payment methods. Example: partial lump sum, rest in paid to you monthly.
But how do you know which way is best for you? You can certainly talk to one of our licensed bankers about your financial situation as in depth as you want. They can help you determine which method of payment will work best for you.
Let’s say you want to take your cash in one lump-sum. A lump-sum distribution helps those seniors who are in danger of a foreclosure. Your lump sum payment can be used to pay off your current mortgage, helping to keep you in your home. Taking a large lump sum can also help to boost your investment opportunities. Maybe you had a lot of investments in the stock market before Dow plunged. Taking a lump sum can give you a chance to re-invest in the market if things are favorable for you.
A lump sum payment could help buy a second home for you. You could have a second home to escape to in Florida if you live in the cold northeast. Or if you have grandkids that live on one side of the United States you could buy a second home to be closer to your grandkids for part of the year. With a lump sum payment you could even buy a RV and tour the United States, the possibilities are endless.
Monthly payment plan with your reverse mortgage is a great way to supplement your lifestyle. You can select to receive your payments for a time frame that works for you. You can choose to have payments for as long as you live in your home or in a shorter time frame meaning you would get a higher amount each month. It is important to check that your payments does not affect your eligibility for certain government programs, like Medicaid. The money from your reverse mortgage is generally not counted as income as long as you spend the whole amount in that month. However, if you do not spend it all monthly, it could push your assets beyond the limits for Medicaid or you Social Security eligibility. If you do not have a large expense to cover like paying off a mortgage or doing major repairs to your home, a monthly payment set up could work best for you.
Line of Credit
The Line of Credit (LOC) option is the most popular with seniors today. Borrows like the fact that they can take as much as they want whenever they want. You could use the LOC as you need it, for monthly costs, to help fund a grandchild’s college tuition costs or even be used to start a new business if you bored with retirement!
What is a LOC? A LOC is like a checking a count held by the servicing company. The funds remain in the LOC and are available to you whenever you would like to draw them out in any amount you would like.
One benefit of a LOC with a reverse mortgage is the borrower does not accrue interest on any portion of the funds that are not being used. Therefore if you do not have an immediate need for funds you do not have to pay interest on the funds as long as they remain un-borrowed.
Another great option with a LOC is it cannot be frozen or closed. As long as there is a remaining balance left on LOC it will remain open to be used. There is no need to worry about the LOC becoming unavailable to you for any reason.
Having your reverse mortgage set up in a LOC means that over time your LOC will grow. So the unused portion of the credit line grows at the same rate at which the loan accrues interest monthly. If you do not use the funds from your reverse mortgage set up in a LOC it will grow monthly based on the interest rates. For example if the index is 1.25% and the interest is 2.75% then the LOC would grow at 4%. If you reverse mortgage was $300,000 x 4% then your credit like would grow by about $1,000 each month. Keep in mind that interest “earned” on the LOC will be added on to the principal balance of the loan.
One thing to consider with a LOC is the amount of time it takes for setup. Typically, the loan servicing company will need between four and six weeks to complete the setup of the LOC. That means it will take up to 45 days after the loan closes before any funds will be available to you. If you think you will need money before then it is probably best to draw out the funds at the closing table.
Combination of payments
One of the last methods of payments you can take with a reverse mortgage is a combination of ways with the lump sum, monthly payments or line of credit. For example, if you had a mortgage on your home that you wanted to pay off but did not use all of the funds from your reverse mortgage you could pay off that first mortgage. The remaining funds from your reverse mortgage could be put into a line of credit that you could access whenever you needed the money. You could even choose to pay off your first mortgage and then decide to take the remaining funds in monthly payments. You will have that extra cash coming from your reverse mortgage every month to help pay for daily expenses. You can tailor your reverse mortgage funds to fit your lifestyle and what will work best for you.
Remember no matter how you choose to receive your cash, it can take anywhere from 4 to 5 weeks to complete your reverse mortgage process. Meaning it may be a while until you receive your cash or are able to access it.
Whichever way you choose to get your cash from your reverse mortgage, keep in mind that the funds are tax-free*. You still own your home meaning you hold the title to your property not the bank. A reverse mortgage can help you live your retirement the way you want to live it. If you have any questions or concerns call today (800) 442-6862 or contact us by email at email@example.com.
*Please consult with your financial advisor.