Initial Disbursement Limitation
Closing costs and interest rates may vary from lender to lender, but the way a reverse mortgage works is going to be the same no matter who you work with.
The amount of loan proceeds you can access during the first 12 months after closing is limited to 60 percent of the loan amount. For example, if you are eligible for a $100,000 reverse mortgage, you may only access $60,000. At the beginning of the thirteenth month, you may access as much or as little of the remaining loan proceeds as you wish.
There are exceptions to this rule. You can withdraw more funds if there is an existing mortgage, or other liens, on the property. The reverse mortgage can be the only mortgage on the property, so all existing debts secured by the home must be paid off. You can withdraw enough to pay off the mortgage, plus another 10 percent of the maximum allowable amount. On a $100,000 reverse mortgage, that's an extra $10,000.
Single Disbursement Lump Sum Option
To help preserve the equity in your home, you have the option to take a lesser portion of the funds that you may qualify for.
For example, you are eligible for a $100,000 reverse mortgage, but you need only $30,000 to fix your roof. You can select the single disbursement lump sum option, which allows you to take a one-time disbursement equal to 60 percent or less of the full loan amount.
If you wanted more money at a later time, you would have to refinance your reverse mortgage. However, you would be paying closing costs all over again, so consider that.
While the typical retiree uses a HECM to eliminate debts, pay for healthcare and/or cover daily living expenses, a growing segment of the senior population is using it to purchase a home that better suits their needs.
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.
While study after study reveals that an overwhelming percentage of seniors want to continue living in their current home for as long as possible, for some people that isn’t the best, or safest, option. HECM for Purchase offers a solution to downsize into a place that’s more easily navigable, possibly more energy efficient, with lower maintenance costs, or which is closer to friends and family.