I had an senior reverse mortgage prospect contact me last Tuesday. He claimed his property was worth a certain amount and wanted to know how much money we would lend him.

I calculated a sum of roughly $140,000, and he decided to move forward. His goal was to take the whole amount and plop it into into his local credit union account, live off of needed funds and earn interest on the balance.

The first thing I did was to, in no uncertain terms, tell him he shouldn’t do that. How he uses the reverse mortgage is based upon his needs. His needs are basic. He only wants extra money to add to his current income.

He owns his home outright. All he wants is some 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 to take a set monthy draw. In this case the lender sends the borrower a set amount every month. This can be done for a life long period or a period determined by the monthly draw.

A popular option is to use a reverse mortgage line of credit. In this instance the mortgage company alots a loan amount. The borrower simply leaves the alotment in the line of credit until it’s needed. The benefit is no interest accues against the home while the money is in the LOC.

Something to note about the line is it actually accrues interest and grows for the borrower’s benefit, while money is in the line of credit.

The last option is a combination of the forementioned options.

In my borrowers case the line of credit option was his best choice because he didn’t need a large lump sum up front. He only needed some money from time to time. Additionally, by using the line of credit is interest burden would be kept to a minimum.

It’s case by case which you choose to use..