Getting Your Money from Reverse Mortgages

Reverse mortgages pay older homeowners for their home equity. But how you get your cash depends upon which mortgage options you choose. Decide what's best for your specific circumstances; then find a lender with a reverse mortgage that fulfills those needs.

The basic idea of a reverse mortgage is that the mortgage company pays cash in exchange for the value of a home, without requiring its sale. After the borrower is dead and gone, the lender then gets its payoff by becoming the legal owner of the home. If the value of the property plummets in the meantime, the mortgage company, not the homeowner's estate or surviving family member, incurs the loss.

Reverse mortgage options

An appropriately designed reverse mortgage can be an excellent financial tool for a homeowner who has substantial equity in his home, has no desire to sell it, and wants a steady and reliable source of retirement income. How the money is received depends upon how the reverse mortgage is structured. In that regard, there are a handful of typical options.

• You can have the value transferred to you through regular monthly cash payments.
• You can get a line of credit based on the value of your reverse mortgage, and tap into it whenever you need to access your capital.
• You can accept a lump sum as your entire payment. (Most jumbo loans are restricted to this type of plan and other options usually don't apply.)
• If you don't have a jumbo, you can work out a payment arrangement that's a combination of options.

You can, for example, use a lump sum distribution to pay off your current mortgage debt, and then let the lender calculate your line of credit or monthly payments based on the amount of home equity that remains free and clear. Unfortunately, you may select that kind of reverse mortgage and wind up with only enough equity to pay off your existing debt. While that scenario doesn't provide you with anything left in reserve-in other words, you'll have no value left to receive as monthly payments or a line of credit-it does leave you without any mortgage payments. For most homeowners, that's the biggest monthly obligation, so a reverse mortgage that eliminates it can be a great solution for retirement planning.

Anticipating the future

When considering a monthly payment plan, be sure to anticipate future needs and try to incorporate those into your financial calculations. Money normally loses value over time because of annual inflation, but you can stagger the amortization schedule so that your payments start off small, and gradually increase.

Pick a reverse mortgage that works for you, ask plenty of questions to gain a clear understanding, and run the paperwork past a conscientious attorney. Then, let a mortgage company pay you for once in your life, as you enjoy a rich and rewarding retirement.