If you make the decision to obtain a reverse mortgage, you will need to understand the payment options that are available to you. I want to take a moment and walk you through the five options… as well as give you my opinion on which one to consider and which one to avoid.
lump sum
The lump sum payoff option is exactly what it sounds like…you receive the mortgage proceeds, which could be several hundred thousand dollars, in one lump sum and you can use the money however you like.
Personally, I think this is a terrible choice, for the simple reason that many people aren’t good at handling money…and if they were, they probably wouldn’t be applying for a reverse mortgage.
Therefore, this is the only reverse mortgage payment option that I would try to avoid.
Term
The term option allows you to receive a fixed reverse mortgage payment for a specified term. For example, the reverse mortgage product will be paid over a period of 10 or 20 years, which is equivalent to payments over 120 or 240 consecutive months. This is the term option.
Tenure
The tenancy option allows the borrower to receive a fixed payment each month they reside in the home. This is certainly safer because as long as you still reside in the home, you will receive payments.
Credit line
What you’re doing here is turning your house into a credit card. You can take out as much as you want from the line of credit at any time and use it whenever you want… this option certainly offers the most flexibility, but you should be careful when using it… for the same reasons I described in the ‘Add overall’ above.
Modified Term/Tenancy
It is possible to modify the above term or tenure option by adding the line of credit option to either so that you can make additional withdrawals in addition to the terms offered by the Term or Tenure option.
Which of these is the best?
Obviously, that question depends a lot on your current financial situation. However, I personally hate the lump sum option (it’s VERY easy to use money frivolously) and the same can be said for line of credit options, either alone or attached to the term or holding option. .
The safest option, in my opinion, is the term or tenure option, but you will need to sit down with a competent financial planner or elder law attorney to see which is truly best based on your particular financial situation.