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Loan Distribution and Common Uses
Distribution:
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Once a borrower qualifies for a reverse mortgage, there are several options for how the funds can be disbursed. They include a lump sum (entire loan amount is provided up-front to the borrower); tenure payments (monthly payments are provided to the borrower for as long as they occupy the home); term payments (monthly payments are provided to the borrower over a specified period of time); credit line (borrower draws on the money as needed); or combination payment (borrower receives a combination line of credit and monthly payments).
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Borrowers can change payment options at any time, subject to a small fee.
Seniors receiving Medicaid and SSi benefits should be careful before choosing a lump sum payment. Income received from a reverse mortgage is not taxed and does not affect most social security or Medicare benefits. However, Medicaid and SSI benefits may be affected if you don’t use your income from the reverse mortgage immediately. The money you keep in the bank is counted as an asset. As such, if you receive income from your reverse mortgage and it’s not used, you may exceed the maximum assets allowable. At that point you would be ineligible to receive these benefits. This is why seniors tend to choose to receive the reverse mortgage proceeds as a line of credit, because they can take money out on an “as needed” basis. Clearly, if money is taken out “as needed”, it would b spent immediately and not counted as an asset. You should consult with you financial advisor, or your local Social Security/Medicaid office for further information and guidance.
Common Uses:
The proceeds from a reverse mortgage can be used for any purpose you wish.
It is possible for a senior to get a reverse mortgage, even if they still owe money on a first or second mortgage. In fact, many seniors use the proceeds from a reverse mortgage to pay off mortgage debt or a credit card balances.
However, if there is an outstanding mortgage, all or a portion of the proceeds from the reverse mortgage must first be used to pay off the debt because the reverse mortgage can be the only lien on the property. If a borrower’s home mortgage debt exceeds the amount of money they could get with a reverse mortgage, then they cannot get the reverse mortgage.
- Daily living expenses
- Supplementing social security, pension, or retirement income
- Home repairs, renovations and improvements
- Medical bills and prescription drugs
- Restoring credit rating through credit card debt consolidation and debt abatement
- Continuing education
- Travel, vacations, and
- Long-term care and/or long-term care insurance
- Financial and estate tax plans
- Endowments and Gifts
- Education expenses for grandchildren
- Life insurance
- Living, funeral, or dedicated trusts
- Home health care
- Foreclosure prevention
- or any other needs you may have.
Recently, due to interest rates coming down, and lending limits going up, seniors that already have a Reverse Mortgage are using reverse mortgages to refinance their existing loans for more favorable conditions. Click here for more detailed information on this important opportunity.
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