A reverse mortgage is a loan financing option provided to senior homeowners who are 62 years or more in age to help them financially during the retirement years. In this loan, the borrower is loaned money against home equity. It offers utmost flexibility to the homeowner (borrower), as he/she need not repay any money until the time of residing in the home. This is where reverse mortgage scores over a traditional mortgage, as the borrower receives payments from the lender, that too by retaining the ownership of the home. Explained ahead are the different payment options and things to remember before opting for a reverse mortgage.

1. Payment options involved in a reverse mortgage
When you decide to choose a reverse mortgage, the lender will provide you with various payment options you can choose from. These are:

• Lump-sum
  In case of a lump-sum option, you receive all the proceeds in one go during the closure of your loan. A lump-sum is the only payment alternative that has a fixed rate of interest. The other five alternatives have adjustable interest rates.
• Term payments
  In terms of payments, the lender will provide you equal monthly payments for a fixed period opted by you. For instance, the lender may provide you term payments for a period of ten years, if you choose a decade as your tenure.
• Tenure payments
  Under tenure payment plans, the lender will provide you with steady payments for the duration in which you or at least one borrower resides in the home as the principal residence.
• Line of credit
  In the case of a line of credit option, you have the flexibility to borrow how much money you need, as per your current situation. You only pay interest on the amounts that you borrowed from the credit line.
• Term payments along with a line of credit
  In this option, the lender gives you equal monthly payments for a particular period that is chosen by you. If you need more funds after that period, you can access the line of credit.
• Tenure payments along with a line of credit
  In this alternative, the lender provides you with monthly payments until the period ends where you occupy the house as your principal residence. If you require more finance during this period, you can access the line of credit.

2. Things to keep in mind before applying for a reverse mortgage

• Rethink if you are planning to shift homes in the near future
  It is not advisable to opt for a reverse mortgage loan if you are planning to shift to another residence within the next five years. This is because if you take a reverse mortgage loan, you will have to repay the entire loan amount and the upfront repayment costs are greater than other loan options.
• Analyze if you wish to decrease your heirs’ inheritance
  Many people do not consider a reverse mortgage as a financing option because they wish that their home goes to their heirs. Also, it is important to note that a reverse mortgage decreases home equity.

It is wise to speak to a financial advisor before making a decision on a reverse mortgage as professional advice can guide you better.