Receiving your payments from a reverse mortgage is extremely flexible with many different payment plans available. Generally, the borrower has the following options:
- Tenure: Equal monthly payments as long as the borrower is alive and occupies the property. This is also known as a tenure payment
- Term: Equal monthly payments for a set amount of fixed time. This is also known as a term payment (note tenure payment means for life, and a term payment means for a set amount of time, like 3 years)
- Line of Credit (LOC): A line of credit that borrowers can draw from at any time. Simply known as the line of credit payment.
- Lump Sum: All loan proceeds are paid upfront to the borrowers at closing.
- Modified Tenure: A combination of both Line of credit and Tenure (scheduled monthly payments).
- Modified Term: A combination of Line of Credit and Term (scheduled monthly payments for a fixed period of months).
Fixed-rate reverse mortgages only have the option of the payment plan as a lump sum payment. This means that if you decide to take out a fixed rate reverse mortgage and pay back the funds, they are not available to be re-drawn.
What payment plan do I want?
Depending on your plans for the funds from the reverse mortgage, your payment plan needs may vary. Some borrowers set up their reverse mortgage simply to pay off their existing mortgage and add a line of credit which they only draw from for emergencies. Other borrowers set up their reverse mortgage to help supplement their monthly income by setting up a payment for the rest of their life.
Part of the beauty of the program is that you can take multiple payment plans at once. This is known as a “modified” payment plan.
A term payment means that the funds from the reverse mortgage will be paid out for a set amount of time. For instance, the borrower can receive $1,000 per month for 5 years. The borrower can call into the servicer and change the term at any time. They can choose to increase or decrease the payment amount at any time.
A tenure payment is a monthly payment that is guaranteed for as long as the borrower is alive. There is no set timeframe on the tenure payment. For instance, the borrower would receive $750 for the remainder of their life. Tenure payments will generally be lower than term payments, but the borrower can always call into the servicer to change from a term payment to a tenure payment, or vice versa.
The best part about the tenure payment is that the funds are completely guaranteed, and it is impossible for the reverse mortgage to run out of money, even if the borrower lives to be 115 years old.
Line of Credit Payment
The line of credit payment creates a revolving line of credit where funds are available to be drawn. The line of credit in a HECM loan actually grows over time if left unused. This means that the line of credit can actually grow to become larger than the value of the home if left untouched for enough time.
The revolving nature of the line of credit means that funds that are drawn from the line of credit can be re-drawn if they are paid back. For instance, if $1,000 is requested from the line of credit, and the $1,000 is paid back, then the $1,000 becomes available to be re-drawn, minus any interest. The HECM loan has no minimum line of credit draw size, an there are no fees for drawing from the line of credit.
Money drawn from the line of credit can be received as an overnight check or can be deposited electronically into the borrower’s bank account.
Modified Term or Modified Tenure Payment
A modified term or modified tenure combines a line of credit with a term or tenure payment. This means that the borrower may receive $750 for life but also have $50,000 in a line of credit. The $50,000 in the line of credit would be available to be drawn whenever the borrower decides.
Changing Your Payment Plan
Part of the beauty of the reverse mortgage is that borrowers are able to change their payment plan at any time without having to refinance their loan. Borrowers may still choose to refinance their loan to increase the amount of money available to them, but simply setting up a monthly payment, removing a monthly payment, and making changes to the line of credit can be done without having to refinance the loan.
If you currently have a reverse mortgage, you can see if there is money currently available to you by looking at your reverse mortgage statement. The statement will show a line called the Net Principal Limit. If the Net Principal Limit is greater than 0, then there is currently money available in the reverse mortgage loan. That means that you can choose to have that money put into a line of credit, set up a term payment, or simply cash out the full amount.
If you have questions related to the servicing of your reverse mortgage loan, it is generally best to reach out directly to your reverse mortgage servicer.