Reverse mortgages give older homeowners the opportunity to have an income even if they are already retired. The good thing about this approach is that unlike the traditional loans, they do not need to shed out cash every time and again just to cover what they have borrowed. Instead, they are the ones who will be receiving cash, in exchange of the value of their homes.
This idea is certainly exciting for the seniors who want to enjoy their retirement years to the fullest. However, they must be aware first of the options on how they will receive their payments. Without fully understanding these methods, the money might not be budgeted properly once it is received.
The following are ways on how reverse mortgage borrowers can receive their funds. These options are flexible enough to meet the needs of the borrowers. They just have to weigh their needs against the length of time they will be collecting their money.
Lump Sum Payment
Seniors can take the balance due to them in a single lump sum payment. This can be beneficial if the need for a large amount of money immediately arises, but you have to know yourself if you are disciplined enough to budget and allocate the funds effectively.
A term payment allows you to receive a fixed amount of money every month for a set period of time. You can have the cash deposited into your bank account every month for a period of like a year or two, depending on what you have agreed upon with the lender.
The only downside on this type of payment is when your spending habit starts to become irregular and you’ll need more cash in addition to what you’re receiving monthly. When this happens, it is time to switch to a more convenient payment plan.
A tenure payment is almost similar to a term payment, except that there’s no limit as to when the loan would end. The only instance when it will be put to a halt is when the person dies or vacates his home. He will continue receiving fixed monthly payments as long as he lives in his home.
The only difference, however, is that the monthly stipend is smaller as compared to a term payment. This is attributed to the fact that there’s no limit to the period of time you’ll be receiving your payments.
Line of Credit
Seniors could also set up a line of credit where they will be given a free hand on how they will access their funds. They can get different amounts in different times, depending on their needs. Also, the value of the home appreciates if the balance is unused.
Just like in a lump sum payment, there’s also a possibility that your credit line will become exhausted because there’s no external control that manages the money. Prioritize your spending so as not to request for additional funds.
Term and tenure payments can also be modified by setting up a line of credit. Choosing a modified payment scheme gives the senior two ways in getting his funds. The monthly payments that will be received will be smaller because a portion has already been allotted to the line of credit. This principle applies to all types of reverse mortgages.