Options for Reverse Mortgage Fund Distribution
Home Equity Conversion Mortgages (HECM), or reverse mortgages, offer borrowers different distribution methods, depending on your date of birth, value of your property, interest rates, and other financial obligations. Which option is right for you will depend on your individual situation. Typically, borrowers can receive money, if they are entitled to additional funds, all at once as a lump sum, monthly payments, a line of credit, or a combination of these.
A lump sum payment means borrowers receive their funds all at once. Interest starts to accrue upon distribution and the monthly mortgage insurance premiums and financed closing costs (if any) are due. A lump sum payment is a good option for borrowers who have a considerable existing mortgage balance. Borrowers who have a large payoff will most likely use all of the funds from the reverse mortgage; and with no additional equity, there’s no monthly financial gain. But while they aren’t getting a check each month, they don’t have the benefit of not having monthly mortgage payment to make.
Choosing a line of credit as a distribution method gives borrowers more flexibility in how and when they use their reverse mortgage fund. A line of credit allows you to access your funds when you need them, until your equity is depleted. One of the advantages of choosing a line of credit is that the unused portion grows over time.
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Receiving monthly payments is the third funds distribution option. Based on your needs and situation, borrowers can receive a fixed monthly payment, consistent monthly payouts for a predetermined number of months, or a combination of scheduled monthly payments and access to a line of credit.
One thing to remember is that structure of a program can be changed over the life of the loan should you need to make an adjustment. For example, if your reverse mortgage loan pays you $100 per month, and five years down the road you need $150 per month, you can make the adjustment as long as the funds are there.
Not all reverse mortgage clients are the same. If you are interested in learning more about HECM options, speak with a Certified Reverse Mortgage Professional who can help you find a program based on what your personal situation.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.