Blog Series: Reverse Mortgage Payouts (Line of Credit)
With Americans living longer than ever, it’s harder for seniors to remain financially stable while extending their savings. This is causing many seniors to delay retirement so they can work more years. Others are downsizing their homes or turning to family for assistance. Fortunately, there’s a solution that can help seniors build savings, prepare for unexpected expenses (such as medical bills), and provide access to funds when needed: a reverse mortgage.
This three part blog series breaks down the different reverse mortgage payout options. If you meet reverse mortgage eligibility requirements, you can choose one of these options (or combine them) based on your unique financial situation.
Reverse mortgages have a range of payout options to choose from
Once you’ve researched reverse mortgages and determined you’re a candidate, you’ll need to consider different methods for receiving your proceeds (funds). While reverse mortgages offer a range of payment options, one of the most powerful is a line of credit. Establishing a line of credit gives you access to funds when you need them by submitting a written request to your mortgage lender. An important feature of your line of credit is that the unused portion of the principal limit (amount available) is guaranteed to grow over time.
You can use a reverse mortgage line of credit to help protect your investments
A powerful advantage of a reverse mortgage line of credit is its ability to help protect your investments. As an example, Ron and Joan took out a reverse mortgage in 2006. They paid off a small mortgage and left the balance of funds in a line of credit. When the stock market crashed in 2008, they stopped taking withdrawals from their investments and drew needed funds from the reverse mortgage line of credit. By having a line of credit, Ron and Joan were not required to sell shares of undervalued stock. This allowed their entire portfolio to recover. After two and a half years they were able to begin drawing funds again from their investments and are allowing the remaining funds in their line of credit to continue growing.
If you’re considering a reverse mortgage, a line of credit is an option
Reverse mortgages can improve financial security for certain retirees. Establishing a reverse mortgage line of credit as early as possible can offer powerful benefits, particularly for those with investments.
To learn more about about other reverse mortgage payment methods, check out our next blog post in this series. If you’re interested in speaking with an Open Mortgage loan originator, contact us.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums, and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment