HECM Payment Options

Line of Credit

Most reverse mortgage borrowers establish a standby line of credit that they access only when funds are needed. Borrowers can access funds by submitting a written  request to the company servicing the loan. An important feature of the line of credit is that the unused portion grows over time. The borrower is not earning interest, like with a checking account. Rather, the growth feature takes into consideration that you are one year older and that your home has appreciated in value. 

Term Payment

This option provides borrowers with fixed monthly payments for a specified amount of time. If, for example, the borrower is 65 and wishes to defer going on Social Security until age 70 (so that he or she can receive the maximum payout benefit), this person can establish term payments for five years. The amount received each month will not change, even if the home decreases in value.

Tenure Payment

This option provides borrowers with fixed monthly payments for as long as the person lives in the home as a primary residence. Even if the loan balance exceeds the value of the home, the borrower will still receive the same monthly payment. The payments only stop when the borrower passes away or permanently leaves the home.

Modified Term/Line of Credit

Under this option, the borrower establishes a line of credit and receives fixed monthly payments for a specified amount of time.

Modified Tenure/Line of Credit  

Under this option, the borrower establishes a line of credit and receives fixed monthly payments for as long as he or she lives in the home.

Single Disbursement Lump Sum

As a way to preserve home equity, a borrower can take a lesser amount of funds than he or she may qualify for. 

For example, if the borrower is eligible for a $100,000 loan, but only needs $30,000 to fix the roof, he or she can take the lesser amount. A one-time lump sum payment is made to the borrower. 
The one drawback is that if the borrower wants more money at a later time, he or she will have to refinance and get a new reverse mortgage and pay closing costs all over again.

For Purchase

Instead of remaining in the same home that they have lived in for several decades, a borrower can use a reverse mortgage to downsize and purchase a new home.

The advantage of using HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds. This home buying process leaves you with no monthly mortgage payments.