Reverse Mortgage Payout Options - part 1

by Greg Patti

If you are considering a reverse mortgage, a number of factors affect the amount of money you eventually receive. Primarily, those factors are: ? Your available home equity; ? Your home's location (state and county); ? The age of the youngest person on the home's title; and ? Current interest rates.
But how you take your money -- that is, whether you take it all at once or over time, and in what form -- can affect how much money you receive as well. In addition, some financial goals are better suited to specific payout options. Choose the wrong payout option, and your reverse mortgage cash doesn't work as hard as it should.

Once your reverse mortgage is approved, there are four payment types. You can: 1. Receive a lump sum check; 2. Take a line of credit, where you can write checks against the amount while unused funds grow; 3. Receive regular monthly payments; or, 4. My personal favorite, a combination of these.

If you realize one payout type is wrong after you receive your reverse mortgage, don't worry. You can almost always change your mind. Virtually every loan program allows the ability to switch at any time. For a small fee (usually $20 to $50), most lenders will re-compute the payout schedule and switch the method of payment. But let's look at these options more closely to understand which payment type might be best for your reverse mortgage.

? Cash Lump Sum. This is a big check -- all the money at once. Not every expense should be paid off in this manner. This is not the best method, for example, for buying a car. It would be less expensive to get a conventional car loan. Nor is this the best method to get money to invest in the stock market. Investments are risky, and your taxable stock market returns would have to be very high to offset the cost of setting up this loan. However, this may be a good method for things like major home repairs, health care, or the purchase of an annuity as part of an overall estate plan.

? Tenure Payment. This is a monthly payment for the rest of your life. (Technically, if you read the fine print, they use 100 years for calculation purposes. However, your payments will never stop. If you pass the century mark, you win; they lose.) Tenure provides a sense of security, since you know the check will always come, month after month. However, tenure payouts will provide you with lower monthly payments (because the rest of your life can be a very long time). They are often a good choice if you just need help with regular monthly living expenses.

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Reverse Mortgage Payout Options

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