What are the Payment Options for the HECM Loan Program​?

A Home Equity Conversion Mortgage (HECM), or reverse mortgage, enables homeowners 62 and above to tap into some of their home equity in the form of cash. This product can be an excellent source of revenue in retirement, especially for those seeking HECM loans in South Carolina and beyond. 

The most attractive feature of the HECM program is its flexibility, especially regarding how you accept your funds. What are the payment options for the HECM loan program? Understanding the various choices is fundamental in selecting the best option for your financial needs. Remember, BrickWood Mortgage can help you make informed mortgage decisions! 

Lump Sum Payment

The lump sum option delivers the complete amount in one upfront payment at closing. This may be a perfect solution for borrowers requiring a substantial sum of money upfront to repay loans, finance excessive medical bills, or pay for a large home improvement project. It offers instant access to all the available funds, but keep in mind that interest on the full amount begins accruing immediately.

Tenure Payment

For individuals who want a steady, continuous stream of income, the tenure payment plan provides an answer. Under this plan, you get equal reverse mortgage monthly payments for as long as you remain in your home as your primary residence and satisfy the loan terms. The amount of the payment is determined from your age, the interest rate, and your home’s value. This plan has the advantage of a guaranteed monthly check, which simplifies budgeting during retirement.

Term Payment

Like the tenure option, the term payment plan offers fixed monthly payments. These payments, however, are made for a set timeframe that you select, e.g., 10 or 15 years. Your monthly payment will be larger than with a tenure plan since the total loan proceeds are stretched over a finite, fixed time horizon. This is a good option if you have a particular financial need or require larger payments for a given number of years.

Line of Credit

The line of credit choice is the most flexible. Rather than getting set payments, you can draw cash as needed, up to your authorized credit limit. You simply pay interest on the amount drawn, not on the full available credit line. 

A special aspect of the HECM line of credit is that the unused amount increases over time, so you’ll have more money available in the future. This is a great feature for covering unforeseen costs. 

You might be asking, can you make payments on a reverse mortgage? While making monthly payments is typically not required, borrowers do have the option to make voluntary payments toward interest or principal if they choose.

Modified Tenure and Modified Term

If one payment plan doesn’t work for you, you can pair a line of credit with monthly payments. A modified tenure plan provides a lower, fixed monthly payment for life, along with a line of credit to use as needed. A modified term plan pairs a line of credit with fixed monthly payments for a set time you choose. These combination plans provide a mix of predictable income and financial flexibility.

Selecting the Correct Plan for You

The multiple payment plans available through the HECM program are intended to meet an array of financial situations and aspirations. If you require a lump sum of cash, a guaranteed monthly income, or the protection of a line of credit, a plan exists that can suit you. 

Think closely about your long-term financial goals to choose the payment arrangement that will best serve your retirement. How do you repay a reverse mortgage? Repayment typically occurs when you sell the home, move out, or pass away, at which point the loan balance plus accrued interest is due. Contact BrickWood Mortgage today to get tailored advice and make the right decision for you!