Choosing the best payment option in reverse mortgage

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Reverse mortgage loans are one of the most flexible loans in the finance sector. Their flexibility is seen in the light that these home owners applying for these loans get a chance to choose the best loan and interest rates that they see are of great importance to them. In addition to this, borrowers also get a chance to be able to choose their loans of choice and also the payment option that they would want to use. Currently, HECM loans offer three different payment options. The payout options include an upfront sum system where all the money is released in one installment, as a line of credit or in equal monthly installments. What is more unique about these loans is the fact that you can actually combine all the three different payout options. For example, a home owner may decide that instead of receiving the money in a single lump sum payment, he/she receives it through the open line credit option and also regular monthly installments. Combined payout options are best referred to as modified tenures and among the commonly used payout options in reverse mortgages.

Upfront payment option 

A research conducted in USA and UK has established that at least 70% of all reverse mortgage applicants opt to use the upfront payment option. This is whereby the total amount of the loan is usually received as a single lump sum. This is usually a cautionary move so as the borrowers can be shielded from having to incur high interest rates. Most borrowers also opt to receive the upfront as a single entity due to the fact that they usually have several liens that require them to clear payment for. In addition to this, one of the terms of reverse mortgages dictates that any outstanding mortgage loan on the estate must be cleared after the reverse mortgage loan is awarded. As such, most people also prefer the lump sum option so that they can be able to clear the balances.

Credit line payment option

There are other borrowers who opt for the credit line option mainly because their outstanding mortgage balances are usually small. The best thing about this option is that has a growth rate in that seniors get a chance to have their credit balances increase as the value of the home’s equity appreciates. Interest in this option is only charged on the total amount of money borrowed. In monthly payout option, there are usually two payment options that the borrowers can choose from. These options are term and tenure options. The main difference between these two options lies in the fact that in the term option, the borrower receives monthly payments for only a specific duration of time. In the other option (tenure), the borrower has a chance to receive monthly payments for as long as they are alive.
While applying for a reverse mortgage loan, it is usually quite important for the borrower to ensure that he/she understands the terms and conditions of the mortgage .This is so as to ensure that there are no setbacks and complications that are bound to occur during loan repayment.



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