According to the Social Security Administration, as of December 2014, the average retired worker drew $1,329 in monthly benefits. If two spouses collected the average monthly benefit, their household income from Social Security would come to about $32,000 — far below the median U.S. household income of about $52,000. If you need or want to increase your monthly cash flow, a reverse mortgage may be the right choice for you.
One of the really neat features of a reverse mortgage is that you have the option of setting up the reverse mortgage so the lender sends you a monthly check instead of you sending them one. The amount you will receive on a monthly basis is dependent on your age, value of your home, equity in your home and how you choose to structure the loan. Using the loan this way can increase your cash flow on a monthly basis.
The reverse mortgage with monthly payments can be structured as follows.
- Tenure – payments for as long as you live in the home.
- Term – payments for a specified term, 1 to 10 years.
- Modified tenure – includes setting aside some of the equity as a line of credit.
- Modified term – includes setting aside some of the equity as a line of credit.
Tenure – With this option you will receive monthly payments for as long as you live in the home, assuming you continue to pay your taxes, insurance and maintain the home. You will receive the least amount in monthly payments. However, you are guaranteed to receive those funds regardless of the loan balance or home price. This is the most conservative and safest option for receiving monthly payments.
With this option you could also get cash out initially to pay off debt or bills. You could also plan for the future if you know of an upcoming large expense such as a roof or the painting of your home. You may also just want to have some cash in savings for unexpected expenses. Keep in mind that the more you pull out initially reduces the monthly payment you will receive.
Modified Tenure – Along with receiving monthly payments for as long as you live in the home, this option would allow you to pull out cash, create a line of credit or both. Unless you have savings or other assets from which you can draw, I highly recommend the modified tenure as you can set some of your equity aside in the line of credit. This creates a nice safety net should unexpected expenses arise.
Term – The term option allows you to receive monthly payments for a specified term from 1 to 10 years. You are guaranteed to receive these payments as long as you are living in the home and you continue to pay your taxes and insurance and maintain your home. This option comes with larger monthly payments. However, once all the payments for the term have been made to you, the payments stop. This option is riskier than the tenure option, but there are plenty of situations where it can make sense.
Modified Term – The same reasons apply for utilizing the modified term as they do for the modified tenure. It typically makes much more sense to set some of the equity aside in a line of credit for future unexpected expenses than receive the larger monthly payment.
If you have questions about reverse mortgages or would like to receive a free analysis give me a call today.