Tips To Avoid Running Out Of Reverse Mortgage Proceeds

Although a reverse mortgage is generally advertised as offering a secure income source for the rest of your life and they could, under the ideal conditions, running out of cash sooner than you anticipated is one of the main risks of taking out this kind of loan. A reverse mortgage is a kind of loan wherein homeowners who have significant home equity can use it to apply for a loan.

How To Receive A Reverse Mortgage?

There are six different ways for you to receive your reverse mortgage Columbia proceeds, and the one you select will have a significant effect on how easily and quickly you can use up your ability to borrow against your house.

1.    Lump sum

2.    Line of credit

3.    Tenure reverse mortgage

4.    Modified tenure reverse mortgage

5.    Term reverse mortgage

6.    Modified term reverse mortgage

All six options have different levels of risk to reverse mortgage borrowers.

How To Avoid Outliving Your Reverse Mortgage?

Lump sum

The lump sum is the only reverse mortgage payment plan that has a fixed interest rate. It may be a low risk method to borrow and you may know how much you need to repay but this option has its own set of unique disadvantages.

The common problem with reverse mortgage borrowers is that they don’t plan correctly. They have a tendency to mismanage the proceeds. When they have used up the cash, they don’t have any sources of income to rely on. The lump sum option is also risky for younger borrowers who have longer lifespans and don’t have a different retirement resources.

Line of credit

The possibility of you running out of cash with a line of credit option whether used alone or along with a term or tenure plan will depend on how you could use the payment plan. Just like a regular HELOC or home equity line of credit, a reverse mortgage line of credit payment plan can’t be revoked, which means it cannot be canceled or reduced due to the changes in your home value or finances.

With this plan, you won’t be at risk of losing access, your available line of credit will go down every time you draw upon it, and just pay the interest and mortgage insurance fees on the money that you borrow. Plus, a line of credit will give you access to more funds as time goes buy since the unused amount grows every year whether or not the value of your home increases. The unused part of the payment plan will grow at the same interest rate that you are paying on the money that you have borrowed.

Tenure reverse mortgage

This option has the least risk of running out of proceeds provided that the loan borrower keeps up with the property taxes, homeowner’s insurance, and home repairs. If the borrower fails to do any of these things then the loan will become due and payable. The interest rates are adjustable as long as the borrower will stay in their home as their primary residence.

Modified tenure reverse mortgage

It provides smaller payments per month compared to a straight tenure plan and the line of credit would be a lot smaller compared to a straight line of credit.

Term reverse mortgage

This payment plan will put the borrower at risk of outliving their loan proceeds. With this option, you reach the principal limit of your loan at the end of the term. After that, you will not be able to get more proceeds from your loan. But you’ll get to stay in the house with the caveats included in the lump sum option.

Modified term reverse mortgage

This option provides the borrower with only a monthly payments for a set of time. However, the line of credit will stay available until it is consumed. If the borrower plan how to use the line of credit, then he or she will unlikely run out of money.

One good way to limit your risks of outliving the proceeds is to wait as long as you can to take out this kind of loan. Change your payment plan if you have already taken out this loan and you think that you could be at risks of outliving the reverse mortgage loan. 

Despite of what the ads say, there are several ways for you to outlive your reverse mortgage. Be sure to understand the situations under which this type of loan might not offer financial stability for life. You can use that knowledge to determine if you should take out this loan and which payment option makes the most sense and offers the best security.

Call Reverse Mortgage Specialist for more information about this type of loan.

David Stacey
Reverse Mortgage Specialist
Columbia, SC 29205
(803) 592-6010
http://reversemortgagecolumbiasc.com/