Payments to the Home Owner With a Reverse Mortgage

Another day of retirement is here friends.  It is a great feeling.  What day is it again?  Saturday?  The nice thing about retirement is that every day feels like Saturday.  Today was a nice easy morning with my newspaper (I still like to hold the paper and read it), and I saw an advertisement about a reverse mortgage.  It reminded me to add another blog post about the best part of it: payments from the bank.

In my last blog post, I shared some information that I learned about a reverse mortgage. 

To recap:

• A reverse mortgage is a loan
• A reverse mortgage uses equity in my house as collateral for the loan
• Borrowers must be 62 years of age to participate
• Borrowers must own the home outright or have paid off a good amount of current mortgage
• The bank makes payments to the borrower

If you’re anything like me, you’re thinking “tell me more about these payments I receive with a reverse mortgage”.  I’m happy to tell you more.  But let’s keep it simple.  To quote my favorite Eagles song we will “take it easy”.  

Since we’ve already established that a reverse mortgage is a loan, there are two types of interest associated with it: fixed and adjustable.  

If you choose a fixed interest rate mortgage, you will receive your payment in one lump sum.  

If you choose an adjustable rate mortgage, there are five options.  You can select the one that works best for you.

1. Equal Monthly Payments for Life: you receive equal monthly payments as long as you (or your spouse) lives and the house is your primary residence
2. Equal Monthly Payments for a Term: you receive equal monthly payments for a set period of time (that you determine)
3. Line of Credit: you can choose to receive payments on your schedule in any amount (until you use up the line of credit)
4. Equal Monthly Payments for Life + Line of Credit: you can mix equal monthly payments for life along with a line of credit 
5. Equal Monthly Payments for a Term + Line of Credit: you can mix equal monthly payments for a specific amount of time along with a line of credit

Having options can be helpful, because it keeps things flexible for you.  You can choose how you want to receive payments.

This can really be a big swing for retirees who still have a traditional “forward” mortgage where they make monthly payments.  Switching to a reverse mortgage not only eliminates a monthly payment to the bank, but it provides a monthly payment to you from the bank!

I’m going to stop here, because this can be a lot to take in.  Hopefully I’ve shared enough information so you know what a reverse mortgage is, who qualifies, and what payment options are available.

Stay tuned for more…there are certainly a few things to consider beyond what I’ve shared so far.