So you’ve set your mind on getting a reverse mortgage. And you’re wondering what payment options are available to you. Here’s a look at what you can expect.
Reverse mortgage loans are insured by the Federal Housing Administration, or FHA. It’s widely known as a part of the Home Equity Conversion Mortgage (HECM) program. By taking out this loan, you can look forward to getting the money in one of any of the following ways:
• Line of credit
• Monthly installments
• Lump sum
Determining how much you can borrow falls on your lender’s shoulders. The lending company will likely assess your interest rate, age, as well as the selling price of your home. When that’s done, you now have your initial principal limit.
That’s why it pays to read the conditions and terms to make sure you know what the limitations and constraints are in using this financial product. Since there’s only a certain amount you can take out during the first year of the loan, make sure your budget can handle it.
Do the Math
You could withdraw as much as 60 percent of your principal limit within the first year. But if the debt you have on an existing mortgage goes beyond the 60 percent of your limit, then you can certainly withdraw enough cash to cover the cost of your mortgage. You can also qualify for an extra 10 percent of your limit. Confused? Talk to your lender about it.
Line of credit: You can withdraw the money only when you need it, says the Federal Trade Commission. That way, the interest will only be on the money you take out and won’t apply to the rest of your credit line. Monthly tenures can work great if you want it to supplement your monthly expenses. Lump sum payments are great for paying off major debts.