While our reverse mortgage process is simple and licensed specialists are great to work with, and one of the best parts of getting a reverse mortgage is, of course, getting your proceeds. When first learning about the reverse mortgage, one of the first questions our clients ask is “How will I receive my proceeds?” When it comes to getting your money, you have four options.
Option One: Receiving a Lump Sum Payment
This first option is exactly as it sounds. You receive your proceeds in one lump sum payment when you close your loan. Those who choose this method may plan to use the money to live off or to make a large payment, such as medical bills, home improvements, or paying off their mortgage to increase monthly cash flow savings.
While they do pay off their existing mortgage, they are still responsible for paying property taxes, homeowners’ insurance, and home maintenance costs. Others who receive their money with a lump sum payment may also have a fixed rate HECM. While a lump sum payment option is available for an adjustable-rate loan, a fixed rate loan only allows this payment option. With a fixed rate loan, you do not have any other option to receive your proceeds.
Option Two: Getting a Reverse Mortgage Line of Credit
One of the most flexible payment options, the reverse mortgage line of credit allows you to withdraw money whenever you need it, and any unused money continues to grow in value over time. Some use this option to create an emergency fund. If there is an emergency that involves unexpected expenses (and most emergencies require a large amount of money), they can draw from this line of credit instead of their savings. Some choose the line of credit and decide not to use their proceeds right away.
The longer they wait, the more money they have access to later. And the available amount of funds grows even if home values decline. Others use the money in the line of credit as they need it for living expenses while they defer using other retirement assets. By waiting to use their other assets, these may grow in value over time and allow them to access more from those accounts later.
Option Three: Scheduling Monthly Payments
If you look forward to getting paid every month or want to control your spending, monthly payments may be a good option for you. If you decide to receive your proceeds with monthly payments, you can choose a term payment or tenure payment.
A term payment distributes the money for a specific amount of time. If you want the payments spread out over five years, you will receive equal monthly payments for five years or 60 months.
A tenure payment distributes equal payments each month throughout the life of the loan. Once the tenure payment is calculated, you will receive that payment each month for as long as you live in the home.
Option Four: Combining Your Options
This option is probably the most customized option, providing you the freedom to pick the amount you want to receive, how you receive it, and when. For example, you can choose to get a lump sum payment of a portion of your proceeds and then put the rest of the money into a line of credit or set up monthly payments.
Using Your Reverse Mortgage Proceeds
No matter how you choose to receive your proceeds, it’s important to remember that they will first be used to pay off your existing mortgage (if you have one) and then you can use your proceeds for anything. We recommend using them responsibly. And don’t forget, you must still pay your property taxes, homeowners’ insurance, and home maintenance costs.