One of the advantages of receiving a HECM, or reverse mortgage, is that there are various ways you can get your money. Since every situation is different, it’s important for you to learn about these options so that you can find the best one for you. One of the more popular options that seniors choose is the line of credit. As an adjustable rate HECM, this choice can give you the opportunity to gain more financial freedom by having access to your cash at any time. When it comes to the line of credit there are an additional three options you can choose from. Decisions like this can be complicated, but hopefully this will make you feel more confident when determining how to go forward.
Option 1: Lump Sum of 60% in the First Year
One of the three options that you can take advantage of is withdrawing 60% of your total loan proceeds in the first year. How this works is that you can have access to 60% of your money for the first 12 months of your reverse mortgage. After that first year, you will have access to the remaining 40%. The reason for this restriction is that the FHA does not want you to run the risk of running out of money too early. This also allows you to plan for long-term financial stability. There are many advantages that can come from using this option. The main one is that you can pay major outstanding expenses with your initial 60%. While this is happening, your other investments and benefits can have time to grow before you gain access to them. Another advantage is that you can be assured you will have more money available after that first 12 months. A downside to this method of receiving your funds is that you may miss the opportunity for your funds to grow over time in a line of credit. If you find yourself in a situation where you need extra income unexpectedly, this may be a good option for you.
Option 2: Monthly Distributions
The second option you can pick to receive your funds is monthly distribution, which will continue indefinitely until the loan comes due. Unlike the first option you will not receive as much in the beginning, but you can still use these monthly distributions to pay off living expenses. By doing this, other investments and benefits may grow in value. Like the lump sum option, you could miss out on an opportunity to possibly have access to more money in the future if you choose this option. This may be a good option for someone if they find that they need some extra cash each month to cover frequent expenses or something of that nature.
Option 3: Let Your Money Grow Over Time
The third option you can pick is to start a line of credit without taking money out. The awesome thing about the line of credit is that unused funds increase in value over time, so you could have more money available in the future. This can help give you peace of mind in protecting your financial future. Unlike the other two options, you must maintain a $50 balance to keep the line open. If you want to build up your finances for the future, this would be a good option for you.
No matter what option you chose, there are numerous benefits that can come from opening a HECM line of credit. The biggest benefit that can come is the possibility for financial growth in the long run. If you believe one of these line of credit options is the solution for you, you can talk to one of our licensed specialists for more information.