Reverse Mortgage Disbursement Options
After signing the papers and closing the loan, you'll have three days to consider whether you want to accept the loan or cancel the loan. This is called the "Right of Rescission." Once the three-day rescission period ends, the funds can be disbursed as agreed in the loan. The homeowner may receive the disbursement in several ways:
Borrowers who use the fixed-rate option can take their funds in a lump sum. With the fixed-rate option, borrowers can feel confident that the rate and terms of the loan will not change. The benefit of the lump-sum option is that it provides larger funds up-front.
Line of Credit
Borrowers may choose a line of credit that offers flexible and easy access to funds. Choose the frequency and amounts you want to draw on the loan, and you'll only be charged interest on the amount of money used from the line of credit.
Borrowers can receive monthly payments for a predetermined amount of time. The monthly term option can be combined with a line of credit so borrowers can benefit from both.
You also can choose from any combination of immediate cash advance, credit line and monthly term payment.
Payout options may be changed after the closing date for an additional fee as long as funds are still available to be drawn. An important note: All of the disbursement options have a cap (or limit) on the amount the homeowner is allowed to access in the first year. The cap is a percentage of the principal limit, which is the amount you can borrow overall. The cap is calculated based on the homeowner's age, interest rate and the value of the home.
Generally, homeowners can borrow up to 60 percent of the initial principal limit in the first year. However, the principal limit can be overridden if the homeowner wants to pay off an existing mortgage immediately that is more than 60 percent of the principal limit. In that case, the homeowner could borrow enough funds to pay off the remainder of the existing mortgage and receive an additional 10 percent of the principal limit in the first year.
Read more about eligibility for a reverse mortgage or continue to the next section on reverse mortgage facts.