How Lump Sum Payments Work

When you borrow money on a reverse mortgage loan you will be receiving and making payments in one form or another. There are many different options and reverse mortgage lenders will structure transactions that fit into the needs of borrowers in order to attract business. One of the most common ways to borrow and repay money on a reverse mortgage is with lump sum payments.

Lump sum payments are those in which a borrower will receive a large payment immediately that can be used for whatever purpose that they have. Many lump sum borrowers will either invest this lump sum payment or use the money to repay other debt that they have which has a higher interest rate associated with it. A lump sum payment reverse mortgage often gives borrowers the immediate access to the funds that they need.

A lump sum payment reverse mortgage stands in contrast to an annuity payment string which provides regular cash flow to borrowers and reduces the interest expense that they pay on the reverse mortgage but restricts the access to the funds being borrowed on the arrangement. Annuity payments are better for those who cannot manage money and need to have payments come in over a period of time.

Lump sum payments on reverse mortgages are commonly used to provide funding for retirees who can then put the money into retirement assets and earn tax free income off of their investments. This can greatly aid an elderly individual who is trying to support themselves during retirement, particularly when interest rates are low on money borrowed under an reverse mortgage yet investment opportunities are available where an person can earn significant amounts of return on these investments.

Another post from Gina Wilson – Credit & Loans Specialist Blogger.

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