Choosing The HECM Payout Plan That Is Right For You
If you’re 62 and considering a Home Equity Conversion Mortgage (HECM), often referred to as a reverse mortgage, you may have more flexible options than you realize. Adding a HECM to your retirement strategy also means you can determine the payout plan that will best fit your situation.
While all reverse mortgages rely on your home’s equity for funding, the form they take can vary greatly based on the purpose they are serving. To help inform your decision, we’ve outlined the different payout plan options below.
With all payout options, no repayment is required as long as the borrower continues to live in the home and the standard homeownership cost is maintained. This would include real estate taxes, insurance and home maintenance.
Single Lump Sum
For those looking to fund a large purchase, pay off debts, use their home equity elsewhere or take advantage of a fixed-rate loan that doesn’t have to be paid back until you leave the home, a lump sum payout is available via HECM. Your age and home value will determine the amount you are eligible for, and it will be accessible as soon as the loan is funded. Note that amounts available under this plan may be limited.
If your desire for a reverse mortgage is predicated on a need for additional reliable retirement income, the tenure payout option could be a good fit. Under this payout plan, you will receive equal monthly payouts for as long as you live in the home. While the payouts may be smaller than other options, they will continue for life unless you leave the home by choice or for health reasons.
A term payout plan also offers consistent monthly payouts, but in this case, you choose the length of time you will receive them. Due to the shorter term, the monthly payouts will also be larger than a tenure plan. Term payouts can be a viable option for retirees who have plans to leave the home at a certain age and want to maximize their HECM.
Line of Credit
Homeowners who currently don’t need to access their home equity to achieve their retirement goals may still benefit from a HECM. The line of credit option makes their home equity available to them in the event of an unexpected expense, but there is no requirement to borrow the money. Also, any unused credit will grow over time, making it a flexible, and sometimes vital, tool for retirement planning and long term security.
Modified Tenure & Modified Term
For those looking for a more customized option, modified tenure and modified term payout plans combine the traditional offerings with the line of credit alternative. A modified tenure plan features a line of credit with monthly payouts for as long as you live in the home. A modified term plan offers monthly payouts over a predetermined time along with the line of credit.
For more information about the HECM payout plan options that are available to you, and to find out how they might become part of your retirement strategy, contact Open Mortgage today.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment