Reverse mortgages are a viable option for many seniors, but many people do not fully understand them before jumping in headfirst. How much money can you receive? What factors determine this number? What types of payment options do you have? What if you decide you don’t want to go through with a reverse mortgage after you already signed the agreement? Read on if you would like to know the answers to these questions and much, much more.
Percentage of Equity
A conservative estimation for the percentage a senior will receive is less than fifty percent. This is disappointing to some, but you are basically paying for the convenience and perks of the plan. The percentage does, however, vary greatly depending on a variety of factors.
One such factor is your initial mortgage insurance premium. Other things that go into this rate include, the current interest rate on your home, the lesser of appraised value, and even the age of the youngest borrower signing.
Sometimes, signers have second thoughts after signing their reverse mortgage. Whether this is because there is an emergency or just because you have reevaluated your financial situation, it is important that you realize you have signed a legal contract and cannot, with few exceptions, be cancelled.
One such exception, though, is the 3-day rule. This rule, while not guaranteed in every reverse mortgage, is a commonly-used agreement in which the borrower may terminate the contract within three days of the signing date. This allows a short evaluation period during which a borrower can reflect on their decision and decide to stick with their reverse mortgage or not. If there is any doubt in your mind while getting a reverse mortgage, check to see if this is offered by the lender.
Once you have decided to go for a reverse mortgage, you must select one of many different payout options offered. These include tenure, term, line of credit, modified tenure and modified term. In the term payout scheme, you are given equal monthly payments for the duration of the number of months you designate. With tenure, on the other hand, you are given equal monthly payments as long as one borrower lives and occupies the designated house.
Line of credit allows you to take out money when you need it. This option has potentially the most flexibility as you can take out the money in chunks as you desire or schedule releases. Lastly, modified tenure is a mixture of tenure and line of credit, and modified term is a mixture of term and line of credit. There structures keep you in check (often those with line of credit blow throw their credit lines quickly) while still allowing flexibility in case of an emergency or a withdrawal where larger amounts are necessary. For these reasons, modified term and modified tenure reverse mortgages are desired; they are the only option that will make your money last and give you the money when you need it.