The Big three to consider (RTM)

There are three components of a reverse mortgage which you need to understand in order to choose the most cost effective way to utilise your funds. They are rates, time and method of drawdown.
 

Interest Rates

This is really a no-brainer. Obviously, the cheaper the interest rate, the less you are going to pay over a particular period. Interest rates vary from lender to lender so it is vital that you shop around……..or let me do that for you.
 

Time

Time is an important consideration because the longer the period you have the loan, the more the interest will accumulate. You can choose any time period you wish, but the longer the loan term, the higher your debt will be when it comes time to sell the home.
 

Method of Drawdown

Most lenders give you three choices. You can take your money in a lump sum, monthly payment, flexible drawdown or in some cases a combination of all three.
Since interest on the loan is calculated and added to your loan each month, it is worth considering how you wish to receive the money. A lump sum drawdown will attract more interest over time than will a montly payment or flexi drawdown.

We are all familiar with the saying, “How long is a piece of string”. Well that about sums up the answer to “What is the best way for me to make my drawdowns” because the combinations are endless. However to give you a rough idea, I’ve included a comparison below that should be helpful.

The assumptions I’ve made for the comparison need to be consistent in order to compare apples with apples so I’ve used:

Interest rate:	9%pa
Increase in home value:	5%pa
Current home value:	$400,000
Time:	5, 10, & 15 years
Loan amount:	$100,000
Monthly payment:	$500

			Debt at end of...
Type of Payment	Loan Amount	Current Value	5 Years	10 Years	15 Years
Lump sum	100,000		156,180	243,922	380,958
Monthly payment	500		38,046	59,717	73,729
Value of home		400,000	510,513	651,558	831,571

As you can see, there is a significant difference between drawing a lump sum and receiving regular monthly payments. The good news is that there are many combinations available to you and depending on your circumstances I simply work with you to achieve the best result.