A reverse mortgage provides you with several options to receive your loan proceeds:
The lump sum option will provide borrowers an immediate disbursement once the loan has closed. This option works well for immediate needs such as paying off debts, making home improvements or purchasing a new home.
Line of Credit
The line of credit provides flexibility, control and easy access to your funds. You choose how much and when you want to access your funds. In addition, the line of credit can help you grow your proceeds further with its growth rate feature. Amounts in the line of credit will grow at the loan rate for as long as you have your reverse mortgage.
Monthly Cash Flow Payments
You can select either a term or tenure payment to schedule payments to be received for a predetermined amount and time.
You can choose a combination from any of the other options.
The reverse mortgage provides a great deal of options for homeowners to choose the proceed plan that best suits their needs. Homeowners can choose a lump-sum dispersal of all available proceeds, a line-of-credit that may be accessed anytime over the life of the loan or monthly payments that for the life of the loan or a shorter-term payment option that would limit the duration of payments while increasing the amount received for each payment.
Generally, you can take out up to 60% of your initial principal limit in the first year. However, if the amount you owe on an existing mortgage (or other required payments) is more than 60% of your initial principal limit, you can take out enough to pay off your mortgage (and any other required payments, including upfront loan fees) plus additional cash of up to 10% of your initial principal limit. This first-year withdrawal cap applies to all 3 payout options.
If you do choose not to access the maximum amount available at closing you may choose from several other options:
Line of Credit
A reverse mortgage line of credit has a clear-cut advantage over the traditional credit line, in that it has a growth option (growth applies to unused funds). While the cost of setup for a HECM is higher, the advantages may outweigh the costs, depending on your situation. The unused funds in your line is guaranteed to grow regardless of the general economy, interest rates, or the underlying
value of your home. If you take out a HECM at age 62 instead of 82 and leave the funds to grow instead of using them, it’s possible that the credit line could grow to be higher than the value of your home.
Tenure and Term Payment
Opting for the tenure payment will convert available proceeds into an amount that will be paid to you each month for the life of the loan. Since the reverse mortgage is a non-recourse loan, you will continue to receive the payment regardless of home value or loan balance as long as you remain in the home and maintain the other homeowner requirements for the reverse mortgage.
In addition to the tenure payment option, a homeowner can select a term payment or payment for a fixed period of time. These payments will only continue for a specified and finite period. This option is seldom chosen because of the limited duration of payments, but may be a viable option for a homeowner that needs a specific amount of money each month that exceeds the amount available with the tenure option.
Monthly Cash Flow Payments
The monthly “tenure” option allows you to receive a monthly payout from your lender for as long as you continue to live in your home. The monthly “term” plan is a similar option, but you only receive the monthly payout for a fixed number of years. The payouts will be larger than under the “tenure” option, and you get to choose how many years you would like.
A combination of the three ways can be used to customize for your needs or wants. The reverse mortgage is a dynamic and customizable product that can be implemented specifically for each client’s needs. That is why it is so important to work with a local reverse mortgage planner to ensure the product is properly explained and utilized.