California Reverse Mortgage is a loan where the lender either pays you a lump sum at one go, makes regular monthly payments, extends a line of credit, or a combination of the three. You continue to own your home and pay property taxes, operating expenses and maintenance. But because you make no regular pay outs on the loan, the balance owed rises each month with the interest applied to it. In the event of your death, your heirs would be responsible for paying the total debt, which is often done by selling or refinancing the house. There are a number of pros and cons for the various California Reverse Mortgage Payment Options.
A.Line of Credit: This is when the access funds are at your discretion. The Pros and Cons of this type of California Reverse Mortgage payment are as follows
Pros: Flexibility – One of the Pros of this Reverse Mortgage Payment is that you can access funds anytime, whenever you need them.
Potential – Another Pro of this Reverse Mortgage Payment is its growth feature. The unused balance grows. This does not mean you are earning interest. The growth factor takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
Extra Income – You can use your equity to supplement your retirement income. You can take a lump sum of cash and a monthly check. You can also take a monthly payment and have a line of credit you can write checks on as you need.
Cons: Spending lure – One of the Cons of this Reverse Mortgage Payment is that is that the funds can be easily exhausted.
Red tape – To access your funds, you must submit a written request to the loan servicer managing your account. It includes several rounds of official documents and meetings to get the amount approved.
B. Term: here you receive fixed monthly payments for a set period of time. The Pros and Cons of this type of California Reverse Mortgage payment are as follows:
Pros Instant transfer – Funds are instantly and automatically deposited to your bank account meeting your instant finance or emergency needs.
Regular money generated – You can receive large monthly advances helping in planning out your regular expenses.
Cons Fixed amount – The amount of funds you receive each month is fixed, so if you need additional funds, you will have to request a payment plan change which is a time consuming process.
A major disadvantage of this Reverse Mortgage Payment is that monthly advances are not indexed for inflation.
C. Tenure: here you receive fixed monthly payments for as long as you live in your home. The Pros and Cons of this California Reverse Mortgage Payment are as follows:
Pros
Worth it – The monthly advances continue for as long as you live in your home, even if the total amount you receive exceeds the value of your home. Despite this, you will never owe more than what your home is worth.
No money worry – You can keep receiving payments for as long as you live. Your spouse will keep receiving the payments if he or she is still alive. You never have to sell your home even if you outlive the equity. The income you receive is tax-free.
Cons The amount of funds you receive each month is fixed, so if you need additional funds, you will have to request a payment plan change.
You leave less equity for your children if you choose the wrong program.