And depending on how you’ll use your payments (whether you need it pay off your existing mortgage, to cover monthly expenses, or pay for unexpected medical costs), you can even change how you want to receive your money,.
Besides taking a lump sum payment, a reverse mortgage lender, such as MetLife (Stock Quote: MET) or Wells Fargo (Stock Quote: WFC), or your reverse mortgage counselor may present you with several payout options for a federally insured reverse mortgage. Here are some examples.
1. Tenure Payments: You get a predetermined amount of money monthly, for every month you continue to live in your home. Even if you live there and receive monthly payments that add up to more than the value of your home, you won’t owe your lender anything. Your reverse mortgage is backed by the Federal Housing Administration which pays your lender the difference.
2. Term Payments: You can opt to get payments monthly for a fixed period of time. In this case, you may be able to get more money each month than you’d get with a tenure plan, according to Peter Bell, president of the National Reverse Mortgage Lenders Association.
3. Line of Credit: This option lets you use your home’s value as a line of credit. You can make withdrawals whenever you want, in whatever amount you want, up to a predetermined maximum. Your unused available credit increases annually, meaning you can have more access to cash as years go by. This is the most common option chosen by reverse mortgage borrowers, according to Bell.
4. Modified Tenure Plan: This option allows you to get both monthly payments as long as you live in your home as well as a line of credit. You can determine how much you’ll need per month by looking at your initial principal limit, the maximum amount available to you. What's left over would be your credit limit.
5. Modified Term Plan: This plan gives you monthly payments for a predetermined period of time, plus a line of credit.
Rules and Policies
Besides being 62 years of age or older, owning your home and getting reverse mortgage counseling, there are several rules you’ll have to abide by to have access to the equity in your home with a reverse mortgage.
1. You must stay in your home. If you move out, sell your home, or don’t occupy it at all for a year straight, your balance will be due in full, Bell says.
2. Your balance will include the total amount you borrowed, plus accrued interest and mortgage insurance premiums. It’s due and payable usually from the proceeds from the sale of your home. Any money that’s left over goes to you or your estate, according to reverse mortgage lender Fannie Mae (Stock Quote: FNM).
3. A borrower can live in a nursing home or other medical facility for up to 12 consecutive months before an HECM loan must be repaid, according to the Federal Trade Commission. In some cases, this 12-month limit may be negotiable, Bell says.
4. A lump sum payment could affect your eligibility for government benefits. You don’t usually have to pay taxes on your reverse mortgage payouts, but getting a lump sum payment could affect your eligibility—or your spouse's eligibility—to get certain state and federal benefits, including Medicaid, according to the Financial Industry Regulatory Authority.
5. You may have to pay a fee to change your payout option. You can change your payout option whenever you want, as often as you want, but your lender will likely charge you an administrative fee of about $35, Bell says.
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Reverse Mortgage 101: Your Questions Answered