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Reverse Mortgage Glossary

Reverse Mortgage Lump Sum

Reverse Mortgage Lump SumA reverse mortgage lump sum is a large tax-free cash payout at closing.

No mortgage payments are required on the lump sum as long as at least one borrower (or non-borrowing spouse) is living in the home and paying the required property charges.

How to easily get a lump sum estimate

You can quickly and easily estimate a lump sum payout using our reverse mortgage calculator. Be sure to select the “Lump Sum/LOC” option on page 4.

>> Click here for our reverse mortgage lump sum calculator

Alternatives to lump sum

If you don’t need all of the money right now, it probably doesn’t make sense to take all available proceeds as a lump sum at closing. You might consider a line of credit instead. The line of credit is ideal because it gives you the same amount of money, but you can borrow only when you need it.

The available line of credit will also grow and compound larger based on a guaranteed growth rate, giving you access to additional equity automatically.

Note that the line of credit is only available on the variable-rate HECM. The fixed-rate HECM only offers a lump sum payout.

How the reverse mortgage lump is calculated

FHA changed the HECM a few years ago to limit the reverse mortgage lump sum available at closing. The purpose of the change was to encourage long-term financial sustainability by preventing seniors from borrowing and using the reverse mortgage proceeds to quickly. The following details how the lump sum is calculated for both of the main HECM programs.

Fixed-rate HECM

If your mandatory obligations are less than 60% of the principal limit, you’ll be given a lump sum for the difference between your mandatory obligations and 60% of the principal limit.

For example, if the principal limit is $100,000 and your mandatory obligations are $40,000, you’ll be given an additional $20,000 lump sum at closing. The total of the mandatory obligations and additional lump sum are $60,000, or 60% of the principal limit. No other cash will be available.

If your mandatory obligations are greater than 60%, you’ll be given an additional 10% of the principal limit (not to exceed the principal limit).

For example, if the principal limit is $100,000 and your mandatory obligations are $80,000, you’ll be given an additional $10,000 at closing (10% of the principal limit). Again, no other cash will be available.

As an additional example, let’s assume the principal limit is $100,000 and your mandatory obligations are $95,000. Because the additional 10% would exceed the principal limit, the lump sum is limited to $5,000.

Variable-rate HECM

If your mandatory obligations are less than 60% of the principal limit, you can take a lump sum of up to 60% of the principal limit at closing. The remaining 40% of the principal limit will come available at the one-year anniversary of the loan in the form of a line of credit.

If your mandatory obligations are greater than 60%, you’ll be allowed to take up to an additional 10% of the principal limit at closing (not to exceed the principal limit). The remainder of the principal limit, if any, will come available at the one-year mark in the form of a line of credit.

How much of a lump sum can you get?

If you would like to get a reverse mortgage lump sum estimate, check out our reverse mortgage calculator.