A single-disbursement lump-sum payment plan allows the borrower to receive all reverse mortgage proceeds as a large amount of money when the loan closes. That means there are no monthly disbursements or other additional proceeds later. The single-disbursement lump-sum payment plan has a single fixed interest rate.
The single-disbursement plan can be a good option for borrowers who need to pay for a large expense and do not expect to need more money later. Funds can be used to pay off a high balance on a first mortgage. Homeowners who want to receive regular monthly payments (or who want the option to borrow as needed) should choose a different option. They could be better off with term payments, tenure payments, a line of credit, or a combination of term or tenure payments with a line of credit.
Here is a scenario of how the single-disbursement lump-sum works.
Lump Sum Scenario
- Craig Jenkins, Age 82, and Sylvia Jenkins, Age 79 (reverse mortgages are calculated using the age of the youngest homeowner.)
- Home Value – $375,000
- Home Equity – $375,000
Craig and Sylvia both take medication to stay in good health. The cost of monthly meds and treatments makes it difficult for them to find the money needed to maintain the quality of life they once enjoyed.
They take out a tax free* reverse mortgage with the option of one lump sum totaling $218,419, or a monthly income of $1,495. The extra cash flow from their Reverse Mortgage more than covers their monthly cost for medication, and allows Craig and Sylvia more freedom with much less stress.
*Be sure to check with your accountant to verify current tax laws.
Note 1: Reverse Mortgage proceeds are based upon the current interest rates at the time the loan closes, the age of the youngest borrower, and the equity in the home. The examples above are based on an interest rate of 6.26%.
Note 2: Borrowers can lock rates in for 60 days from the date of application to the closing. All rates adjust weekly, and the rate for closing is determined by the weekly rate set on Tuesdays of each week (excluding Federal Holidays) and stay valid until the following Monday.