I applied for a reverse mortgage ten months ago with the understanding that I was applying for a ten-year reverse mortgage.  Then, I received a letter from the servicing department that the final monthly payment would end on October 2.  After calling the lender who wrote up the package and then checking, it was determined that the person processing my application entered data incorrectly and that it was only a ten-month, not ten years.  They suggest I use the line of credit available to me, but I have to apply for it to be disbursed monthly, and there is a fee for each disbursement.  Can the original intention of this reverse mortgage be corrected to ten years so I don’t have to use the line of credit?

Did you intend to have a term loan with the term being ten years, or were you looking to do a tenure reverse mortgage (which many people mistake the “tenure” for “ten years”)?

Reverse Mortgage Payment Options: Term, Modified Term Payment Options

A term loan is a loan that pays payments for the specified term that they agree on in advance, and then, usually, all the funds are gone at the end of the term.  A tenure loan determines what your payment will be based on your age because it is a loan that will pay you a monthly payment for life.   There are also modified term and tenure payments available where you can also specify that you want a certain amount of the loan placed in a line of credit available to you, and that would affect the amount of money that would be left for the monthly payments, making those payments lower but giving you funds in a line of credit you can use whenever you need them.

Exploring Term and Modified Term Payment Structures

Understanding Term Payment Options

A term loan is structured to provide payments over a predetermined period agreed upon by the borrower and the lender.  Once the specified term concludes, the loan payments end, typically depleting the available funds.

Tenure Loans: Payments for Life

Conversely, a tenure loan calculates monthly payments based on the borrower’s age, offering a steady income stream for the borrower’s lifetime.  This type of loan is designed to provide financial stability for as long as the borrower lives.

Flexibility with Modified Term and Tenure Payments

For those seeking flexibility, modified term and tenure payment options are available.  These options allow borrowers to allocate a portion of the loan to a line of credit accessible at any time.  This allocation adjusts the monthly payments, which may be reduced, but ensures the availability of funds for future needs.

Line of Credit Payment Option

When you choose the line of credit, there is no cost to take draws from the line; you may confuse the nominal cost to convert your loan from one option to another after it has closed.   As long as you still have money on your line of credit, you can change your options for receiving your money at any time.  There is a small fee to make the changes as they need to do the calculations and the paperwork and set you up on the new program, but it is not a large fee (usually about $50 or less), and it is a one-time fee.

Understanding the Line of Credit Payment Option

Flexibility in Accessing Funds

Opting for a line of credit in a reverse mortgage allows you to draw funds as needed without incurring additional costs for each withdrawal.  This feature allows you to access the available credit at your convenience, providing a sense of financial control and adaptability.

Option to Change Payment Methods

An advantageous aspect of the line of credit option is the ability to modify your payment method later on.  You can switch to a different payment plan if your financial needs or preferences change.

Minimal Costs for Modifications

Switching payment options does incur a nominal fee, primarily to cover the costs associated with recalculating your benefits and processing the necessary paperwork.  This fee is relatively modest, typically around $50 or less, and is charged only once.  The charge reflects the administrative work required to transition you to your new chosen payment plan.

Payment Discrepancies in Reverse Mortgages

Understanding Payment Term Differences

While I am not privy to the specific discussions between you and your lender at the time of your loan’s closure, it’s important to clarify the significant differences in monthly payment amounts across various terms.  For instance, the payment amounts for a 10-month, 10-year, and tenure (lifetime) plan would be noticeably different, especially if the borrower is of advanced age.

The Impact of Shorter Term Lengths on Payment Amounts

Payments for a shorter term, like 10 months, would naturally be higher since the total loan amount is distributed over a lesser period.  This difference in payment amounts should be clearly discernible when compared to longer terms like 10 years or tenure options.

HUD’s Regulation on Initial Fund Disbursement

HUD imposes limits on the amount that can be received in the first 12 months following a reverse mortgage agreement.  Typically, you cannot access more than 60% of the total funds available under the program at closing or within the first year.  Consequently, this results in a pause in fund availability, ensuring compliance with HUD’s disbursement guidelines.

Access to Remaining Funds

Any funds not disbursed in the initial 12 months become available after this period.  As I am not acquainted with the specifics of your agreement, I cannot provide detailed insights into what might be available in your case.

Changes in Payment Options with Your Reverse Mortgage Servicer

Requesting a Change in Payment Terms

This may be feasible if you initially chose a specific payment amount with the remaining funds allocated to your line of credit and now wish to extend your payment term.  You can request your servicer to modify your payment option to a longer term.  This adjustment will depend on whether your line of credit has sufficient funds to support the desired payments for the remaining 9 years and 2 months.

Understanding the Servicer’s Role

Your servicer will need to calculate the viability of extending your payment term based on the available balance in your line of credit.  If feasible, they can implement this change, typically for a nominal fee, and continue the payments as per your request.  However, this is contingent upon your line of credit being large enough to sustain the payments throughout the new term.

Potential Impact of Previous Payment Miscalculations

If you received a higher payment amount due to a misunderstanding, this could influence your remaining payment capacity.  The servicing department is best positioned to provide specific details about how this might affect your future payments.

Addressing Discrepancies with Your Originator

Should the line of credit be insufficient for the desired term, it could indicate a miscommunication with your loan originator.  It’s advisable to revisit your initial disclosures and paperwork.  There’s a possibility that the disclosures you received were intended for a 10-year term, but a mistake was made, setting the payments for only 10 months.  If your payments were higher than expected, this should have been an immediate red flag indicating an error.

Next Steps

To clarify and possibly rectify this situation, contact your servicer to verify the funds in your line of credit.  Discuss with them the feasibility of switching to either the longer-term payment plan or a tenure payment plan (payments for life), depending on your preference.  Be aware that such a change typically incurs a one-time fee.

Also See: Reverse Mortgage Payment Options: Lump Sum vs Line of Credit