If I do a reverse mortgage, can I pull all the money upfront as a lump sum, or do I have to have a line of credit? Is there a cost to pulling out all the money upfront?

HUD changed the program a little while back so that borrowers are capped at what they can pull from home based on the amount of what HUD calls the property charges that must be paid at the time of the loan.

The bottom line is that borrowers who need all their funds to pay off an existing mortgage* or are using it to purchase a new home can still use the entire reverse mortgage proceeds from the start.

However, those who do not need all the funds to pay off existing loans or pay off the existing loans plus the costs of the reverse mortgage (what HUD now calls Mandatory Obligations) are limited to 60% of the Principal Limit or the amount required to pay the Mandatory Obligations plus 10% (for some cash availability at closing), whichever is greater.

ARLO explains reverse mortgage payment options: lump sum vs. line of credit

What this means in plain English is that if your reverse mortgage proceeds are $100,000 and you have no liens against your home, you would be limited to $60,000 at the close of the loan, and from that, the cost of the loan would be taken.

If you had a current loan to pay off $55,000, you would be allowed to take an amount equal to the mandatory obligations ($55,000 plus the cost to get the loan) plus 10% in additional loan proceeds.

And it makes a difference if you are getting a fixed rate loan versus a line of credit option as to whether or not you will have access to more funds later. The limitation on the funds referred to above is at closing or in the first 12 months. 

For a line of credit loan, that means that anything not available to you at the time of closing can take any time after 12 months. On the fixed-rate loan, though, the options are different. The fixed-rate loan is a closed-end instrument, so you have only one draw available. Anything you do not draw due to the initial limitation is lost to you.

In our example above, on the fixed rate loan, you would be limited to $60,000 of your $100,000 maximum limit at closing if you had no loan to pay off. Then you would not be able to draw any more funds on the loan in the future.

This change by HUD has made the fixed rate option much less desirable to borrowers not using the entire loan amount to pay off an existing loan or to purchase a new property where 100% of the reverse mortgage proceeds are available from day one.

Reverse Mortgage Lump Sum Restrictions - Explained by Expert Cliff Auerswald

Line of Credit Option 

Using the reverse mortgage as a line of credit, you can take anything that HUD does not let you take in the initial draw after the 1st year.  On day 366 and beyond, the remainder of the funds are available to you on the line of credit, so if you can limit yourself to 60%, you can also limit your fees.

Therefore, borrowers with large lines of credit available to them typically opt for the line of credit program now to access all of their funds and not lose those funds that HUD does not make available until the 2nd year.

The bottom line is you can use either program to access up to 60% of your principal limit if there are no liens or the balances are low. You can use either program to access up to 100% of your proceeds to pay off existing liens.

However, suppose you have a small balance to pay off and will be restricted by the HUD 60% maximum draw in the first year. Only the line credit program will give you access to the additional funds after the initial draw.

*Under HUD’s new guidelines, mortgages to be paid off with reverse mortgage proceeds must be at least 12 months old.

Reverse Mortgage Line of Credit Growth Explained

Top FAQs


What are the reverse mortgage payment options?

With a reverse mortgage loan, there are several different payment options. You can have a line of credit where you access funds over time as you request them; You can have a monthly payment plan either for life (tenure) or for a specified period (term) where you get a specified dollar amount disbursement every single month after the loan closes; or you can sometimes receive a cash lump sum at the time of closing. Additionally, you can combine payment plans, such as having a monthly payment plan with additional funds set aside in a line of credit.

How much can I get monthly on a reverse mortgage?

The amount of money a homeowner can receive monthly on a reverse mortgage is not a set amount and is determined by several factors. Those factors include the age of the youngest borrower, current interest rates, home value, and the amount of existing lien(s), if any. To determine how much you would be eligible for, you should reach out to a reverse mortgage lender and have them run your scenario and prepare a detailed loan proposal. You can visit our calculator here.

What is the 60% rule for reverse mortgages?

The 60% rule for reverse mortgages refers to the initial disbursement limit that HUD has in place for the Home Equity Conversion Mortgage (HECM). This rule limits a reverse mortgage borrower to advance 60% of the Principal Limit (Principal Limit being the total loan amount available) at the time of closing and during the first year of the loan being in place. There is an exception to this rule, which applies when the existing mortgage needing to be paid off exceeds the 60% threshold. When that happens, the guidelines permit you to pay off the existing mortgage and receive an additional 10% of the Principal Limit in proceeds at the time of closing or during the first year. At the end of the first year, there are no additional restrictions on how much can be advanced, and the entirety of the line of credit becomes available for advance.

What happens to an unused line of credit on a reverse mortgage?

The unused line of credit funds for a reverse mortgage are subject to the Line of Credit Growth Rate on a Home Equity Conversion Mortgage (HECM). Funds available in the line of credit are not owed and only become part of the outstanding loan balance once they are advanced. As long as funds are available in the line of credit, they will be subject to the line of credit growth, increasing the amount of money available to a borrower.

How long does it take to get money from a reverse mortgage?

The timeframe to get money from a reverse mortgage depends on when you request funds. Suppose you request an initial advance from the loan at the time of loan closing. In that case, those funds can be wired directly to your bank account immediately after the loan funds are recorded, which usually occurs within 24 hours of the loan closing. Once the loan is closed and being serviced, HUD guidelines allow up to 5 days for a line of credit advance to be processed by the servicer.