Reverse Mortgage Payment Options: Line of Credit vs. Term vs. Tenure

With a reverse mortgage, you have a variety of options for receiving your payments. They include a line of credit, term payments, tenure payments or a combination between two of these options. Each reverse mortgage payment option has its own pros and cons.

Reverse Mortgage Line of Credit

A reverse mortgage line of credit works much like a credit card account. Rather than receiving a set amount of cash each month, you request withdrawals as needed. For example, one month you can ask to receive $1,000 and the next you can opt to withdraw only $200.

The advantage of a reverse mortgage line of credit is that you have the flexibility to access fund as needed.

The disadvantage of a reverse mortgage line of credit is that you can potentially exhaust your line of credit. If this happens, you will have to refinance in order to receive more money. Furthermore, you must submit a written request to the servicer of your loan each time you want to make a withdrawal.

One last feature of a reverse mortgage line of credit that is neither a pro nor a con: your unused balance grows over time. This does not mean you are earning interest. Rather, this growth reflects the appreciated value of your home and the greater amount of money to which you are entitled to due to being one year older.

Reverse Mortgage Term

With term payments, you receive a fixed monthly payment for a set amount of time. For example, if you have a 15-year reverse mortgage, your payments will cease after 15 years, even if you still occupy the home.

The advantage of a reverse mortgage term payment plan is that you have a predictable, guaranteed income for a certain amount of time. The funds can be directly deposited into your bank without making a request. Furthermore, the monthly payments are typically larger than those associated with a tenure payment plan (see below).

The disadvantage of a reverse mortgage term payment plan is that when you reach the end of the term, you must refinance to continue receiving an income. Furthermore, your monthly payments are not indexed for inflation, as they are for a reverse mortgage line of credit.

Reverse Mortgage Tenure

If you have a tenure payment plan with your reverse mortgage, you receive a fixed monthly payment for the entire time that you occupy your home. However, you will not be liable to repay more than the value of your home, even if you receive payments that exceed that amount.

The advantage of a reverse mortgage tenure payment plan is that you have a guaranteed source of income for as long as you occupy the financed home. You will not have to refinance to continue receiving payments.

However, the disadvantage of a reverse mortgage tenure payment plan is that you receive smaller payments each month.

Modified Term and Modified Tenure

A term reverse mortgage or tenure reverse mortgage can be combined with a line of credit reverse mortgage payment plan. This gives you the stability of a term or tenure payment plan coupled with the flexibility of a line of credit. Of course, both your monthly payment and line of credit will be smaller than a standalone plan. But this arrangement provides a favorable balance between access to additional funds, if you need them, and a steady month-to-month income.

Conclusion

There are several options for receiving payments from your reverse mortgage. Each is designed to meet the specific needs of the borrower. Depending on your life expectancy, financial need and other factors, you may be better served by a tenure, term, line of credit or modified term or modified tenure plan. Consult with your reverse mortgage counselor to determine which is best for you.

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