If you are looking into your options with a reverse mortgage, you likely have plenty of questions that need some answers. As these home loans become a very popular option for retiring Americans to tap into their home equity during their golden years, there is a lot to wonder about them.
Now we have already extensively covered reverse mortgages to help keep you as informed as possible. You can access our archives to learn more about them and how they work. But for today, we’ll keep things simpler by answering a very common question: How are reverse mortgage funds disbursed?
Line of Credit
One option with a reverse mortgage is to take out a line of credit. This lets you draw from your loan via a credit line that is very similar to a home equity line of credit. It has limits and is capped, and you will only be charged interest on the money that you borrow.
You are in control and can withdraw the money as you see fit. It’s a great way to just know that you have that available money sitting there should the need arise. Furthermore, the amount that you can borrow will increase over time, and as long as you meet the requirements, the line of credit cannot be frozen or cancelled on you.
Now it is possible to combine this line of credit with a tenure option, or a monthly payout that’s on a fixed term. You can also choose the payout terms of the tenure, but bear in mind these types of options are offered only with an adjustable rate mortgage.
You can also choose to just receive monthly payments from the bank. These are divided over a predetermined number of years and months. An equal check is issued each month from the bank to you. Over time, this amount can increase, but make sure to check with your banker to know how your payouts will work.
Lump Sum Payout
Perhaps the most popular payment payout option is the lump sum. This means that you are given the entire proceeds – after fees – upfront. It also means that you are using a fixed rate loan. Keep in mind there are first year withdrawal limits, and in some cases you can get more money by opting for monthly payments, a line of credit or a combination of the two.