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Knowing what your options are when it comes to reverse mortgage payout options will allow you to an informed decision about your finances at a time when many people are worried about their finances
There are five payout options available to you, and I will detail them below…
The first of the reverse mortgage payout options to be discussed with be the lump sum payout. This option is exactly what it sounds like. You get the total amount of the reverse mortgage, minus closing costs, in one check at the closing.
In my personal opinion, I don’t think this is the best option for many people.
The biggest reason for this is that many people are not very good with handling money. After all, if you were good with money then you probably wouldn’t need the reverse mortgage in the first place.
Therefore, I think that the other reverse mortgage payout options are far better for you.
The term option allows the borrower to receive a fixed number of payments for a fixed period of time that you select. As an example, you can receive payments of $2,000.00 a month for 10 years.
After the term is up, you no longer receive payments but do have to pay the loan back until you move out of the house.
This option allows you to receive equal monthly payments for as long as at least one of the borrowers lives in the house.
An example of this would be if a husband and wife agree that they will receive $1,500 a month. Even if one of the borrowers passes away the other will still receive the $1,500 a month as long as they maintain residence in the house.
The line-of-credit option works identically as a line-of-credit in a conventional mortgage. In essence, your home has the line-of-credit attached to it and you can take as much or as little as you want at any time up until the point the credit line is exhausted.
Above, I described the tenure option, where you receive a fixed payment for as long as one of the borrowers lives in the house.
With this modified option, you still receive those payments but you can also tap into a line-of-credit as well. This reverse mortgage payout option in essence combines the tenure and line-of-credit options.
As with the modified tenure option, the modified term option combines the line-of-credit and the term option above.
So, as an example, you may agree to receive $1,500 a month payments from the bank for 10 years…but also have access to a line-of-credit as well with this option.
Inevitable, this is the question that will be asked….of the six options above, which reverse mortgage payout option is the best for seniors? And the answer is…it depends.
Sorry to not give a boiler plate answer, but it’s the truth. Everyone’s situation is different so there isn’t a ‘one-size-fits-all’ answer.
On a personal basis, I like the idea of the ‘Tenure’ option, but only because you will never reach the point where the payments stop as they will with the term option.
Of course, the ‘Tenure’ option may not be practical for you because it may not pay out enough money for you to live on.
This is why I said that there is no one ‘best answer’ to the question.
I will say, however, that this is one of the questions that you should have for your counselor when you have the mandatory counseling session.
They will be in a position to give you unbiased information that will allow you to figure out which option is best for you based upon your unique financial situation.
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