Seniors who choose to take advantage of the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program typically accept their loan proceeds in one lump sum. For many seniors, this option simply makes the most sense since they need the funds to repay an existing mortgage balance. However, for those who own their home outright, the lump sum disbursement option is not always the most beneficial.
Which FHA Reverse Mortgage Disbursement Option Best Meets Your Needs
A few days ago, Jack Guttentag, more commonly known as the Mortgage Professor, wrote an article urging seniors to begin considering other payout options when taking an FHA reverse mortgage. In addition to the lump sum option, borrowers may also decide to receive their proceeds in monthly installments or open a line of credit. The major benefit of these two options is that they prevent borrowers from going through their funds too quickly.
Another benefit is that borrowers often receive more than they would with the lump sum option. For example, with the credit line option, unused proceeds grow according to the loan’s interest rate. Tenure payments, which continue until borrowers pass away or sell the home, also continue regardless of the loan balance. This means that borrowers could potentially receive thousands of dollars over what was due to them. Also, because the loan is nonrecourse, the additional proceeds would not have to be repaid.
Another thing to consider is that borrowers can switch disbursement options at any time throughout their loan. If a borrower chooses to receive monthly installments and then needs a large sum of cash years later, he or she can switch to the lump sum disbursement option. Borrowers are not required to refinance their loan; they are typically only required to pay a small fee. This flexibility ensures that borrowers can always tailor their loan to meet their changing needs.
To learn more about an FHA reverse mortgage, contact one of our loan specialists at (877) 267-0274 for details.