Find out more on Debt Consolidation Credit Counseling In Phoenix Now!
Thursday, January 15, 2009
So, a potential customer calls me the other day and inquires about the reverse mortgage and how much money he can get out of his house assuming it appraises at a certain amount.
I pulled out my supercomputer, punched in the numbers and out popped about $130,000. He said, "let's do it". So, what he wants to do with the money is take all $130,000 and put into his bank account. He'd make draws thereafter for living expenses.
Well, I had to slow him down a little here and let him know he was making a mistake. He is not an unusual reverse mortgage customer. He simply needs to supplement income for living expenses.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
My borrower has these four options:
The 1st option is to receive a lump sum. This the option my borrower was looking for, so he thought. A borrower may draw out any denomination less than that which the lender is willing to lend that particular borrower.
The second option is for the lender to send monthly draws to the borrower. The borrower can choose to receive money until death, in which case the lender sets the amount the borrower will receive. Or the borrower can set an amount to be received every month.
The third is taking a line of credit. The line of credit allows the borrower to pull money out of of the line of credit any any time. The benefit of the LOC is that interest is that unused money is not accruing interest against the equity of the home while it is still in the line of credit.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
The fourth option is to use a combination of any of the three plans just mentioned.
Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn't need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.
Different choices exist because we all have unique situations.
I pulled out my supercomputer, punched in the numbers and out popped about $130,000. He said, "let's do it". So, what he wants to do with the money is take all $130,000 and put into his bank account. He'd make draws thereafter for living expenses.
Well, I had to slow him down a little here and let him know he was making a mistake. He is not an unusual reverse mortgage customer. He simply needs to supplement income for living expenses.
All my prospective borrower wants is some monthly supplemental income.
He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.
My borrower has these four options:
The 1st option is to receive a lump sum. This the option my borrower was looking for, so he thought. A borrower may draw out any denomination less than that which the lender is willing to lend that particular borrower.
The second option is for the lender to send monthly draws to the borrower. The borrower can choose to receive money until death, in which case the lender sets the amount the borrower will receive. Or the borrower can set an amount to be received every month.
The third is taking a line of credit. The line of credit allows the borrower to pull money out of of the line of credit any any time. The benefit of the LOC is that interest is that unused money is not accruing interest against the equity of the home while it is still in the line of credit.
An important point about the line of credit is the unused portion of the line is actually accruing interest for the borrower increasing the line of credit over time.
The fourth option is to use a combination of any of the three plans just mentioned.
Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn't need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.
Different choices exist because we all have unique situations.
posted by Credit Counseling at
1:21 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home