Reverse Mortgage Payment Options: Lump Sum vs Line of Credit

June 29, 2021

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.

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.

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.

2025 Reverse Mortgage: Lump Sum or Line of Credit?

Feature	Lump Sum (Fixed Rate)	Line of Credit (Adjustable Rate)
Max Upfront Cash	60% of limit (or 100% to pay off mortgage*)	60% of limit (or 100% to pay off mortgage*)
Access After Year 1	No—unused funds lost	Yes—full amount available
Example (No Liens, $100K Limit)	$60K at closing, no more later	$60K at closing, $40K after 12 months
Example (With $55K Lien)	$55K + costs + 10% ($65K total), no more later	$55K + costs + 10% ($65K total), rest after 12 months
Cost Impact	Higher interest on full draw upfront	Lower fees if you delay draws
Note: *100% allowed if paying off a mortgage over 12 months old. Costs deducted from proceeds.

See how to get reverse mortgage funds in 2025—lump sum or line of credit. Learn limits and costs. Call (800) 565-1722 for help!

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.

Reverse Mortgage Lump Sum Restrictions - Explained by Expert Cliff Auerswald

Reverse Mortgage Line of Credit Growth Explained

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Have a Question About Reverse Mortgages?

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Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

14 Comments on this Article

Bri
July 21st, 2025

I was approved for a reverse mortgage, including a lump sum up front. However, at closing, the lender told me I no longer qualify for the lump sum payment because I have a history of paying my property taxes late.

What can I do? Is this normal, or should I find another lender?
Reply to Bri
- Michael Branson
  July 21st, 2025
  Hello Bri,
  
  Thank you for your question. Based on what you shared, it sounds like the lender determined you are now required to have a Life Expectancy Set Aside (LESA) due to concerns about your history of paying property taxes late. Unfortunately, this situation is not uncommon, and here's why.
  
  What Is a LESA and Why Is It Required?
  HUD requires lenders to set up a LESA when a borrower has credit or income concerns, particularly related to their ability to keep up with property charges like:
  A LESA is like an escrow account. The lender sets aside part of your reverse mortgage proceeds to ensure your property taxes and insurance are paid on time. This protects both you and the program, since non-payment of these charges could lead to foreclosure even with a reverse mortgage.
  
  Is There a Way to Avoid the LESA?
  Sometimes, yes - but it depends on your specific situation.
  
  Lenders look at:
  The cause: If the late payment was beyond your control (for example, due to a temporary hardship or medical event), and you can prove this, lenders may reconsider.
  
  If you've always paid your obligations on time except for one isolated issue, you may be able to appeal the decision by providing documentation that shows:
  Unfortunately, lenders cannot accept just a letter of explanation in most cases - HUD typically requires actual documentation to waive a LESA.
  
  Should You Try Another Lender?
  If you've already explained your situation to your current lender and they're unwilling to waive the LESA, it never hurts to get a second opinion. Some lenders may interpret HUD's guidelines with slight differences depending on the documentation you can provide.
  
  However, be aware that this is a common HUD rule, not just something one lender is doing. In 2014, HUD introduced financial assessment rules because too many reverse mortgage borrowers were falling behind on taxes and insurance. To prevent foreclosures, HUD now requires tighter underwriting and often mandates a LESA when there's a history of property charge delinquencies.
  
  If your late tax payments were truly a one-time issue beyond your control, gather any documentation you can and present your case to your lender. If they still won't approve a lump sum, you can always speak with another lender for a second opinion. Just keep in mind, if the late payments happened within the last 24 months, a LESA is usually required unless you have strong supporting documentation.
  
  If you'd like help reviewing your situation or exploring options, feel free to reach out. We're happy to assist.
  Reply to Michael
Jack Y.
May 26th, 2021

My wife recently passed and I am considering a reverse mortgage. My home is currently worth $200K and I own $57K on a VA loan, I would be interested in paying off the current mortgage and having a credit line. I have a problem and a question; the up front loan insurance premium is the problem, can it be added to the loan? My question is if I use the line of credit for a home improvement that adds value to the house is that reflected in the credit line?
Reply to Jack
- Michael Branson
  June 1st, 2021
  
  Hello Jack,
  The initial mortgage insurance premium is paid through the loan closing, this is not money you pay out of pocket. So, the answer to your first question is yes, that is how it is always treated.
  If you add value to the home, it will not increase your line of credit later unless you refinance the loan and have a new appraisal completed. The terms of the loan are not altered when you do improvements, but it would obviously improve your equity position in the property.
  If need to use that additional equity for additional funds available for borrowing though, you would need to refinance the loan based on the higher value.
  Keep in mind that the value would depend on how much the improvements raised the market value based on recent sales of similar properties with similar improvements that the appraiser uses to compare to your home at the time of appraisal and not necessarily the cost of the improvements your made.
  Some improvements may not bring a dollar for dollar increase at time of appraisal while some may put your home into a different category and allow appraisers to compare your home to a different level of sales.
  It really pays to be aware of what is selling in your area and to improve your home in accordance with the market.
  Reply to Michael
JC
April 16th, 2020

I have about $283,000.00 in equity ($540,000.00-$257,000.00) in my house and about $730,000.00 in retirement no other debt. What's your opinion on taking a reserve mortgage lump sum and reinvesting for a more secure retirement plan?
Reply to JC
- Michael Branson
  April 20th, 2020
  
  Hello JC,
  I do not believe that would work for you. The reverse mortgage loan requires you to have about a 50% loan to value position on your property (it would give you more based on being older, but I do not know your age). You would be required to pay off your current loan and therefore, once the existing debt was repaid and the fees for the loan charged, there would not be very much to invest. It would eliminate your monthly payment but if that is not what you are looking to do, then there would be no reason to get the loan. If you wanted to eliminate your monthly payment so that you could use that money for other purposes, then a reverse mortgage might be the loan for you but otherwise, it will not achieve your desired results.
  Reply to Michael
Syl
March 22nd, 2020

I received the initial payout of my line of credit close to 5 years ago. I know that I will most likely eventually need the rest of what was held back. My question is whether this would be a good time to retrieve the rest of it, what with the economy under attack.
Reply to Syl
- Michael Branson
  March 24th, 2020
  
  Hello Syl,
  The line of credit continues to grow on the unused portion and there is no reason to believe the funds will not be available in the future. If you need the funds now, then draw what you need. If you do not, I see no reason to not leave the line as it is and let the amount of funds available to you continue to grow for use later. No one can tell the future, but the loan is federally insured to guarantee that the funds will always be available to you and if that failed, where would it be any safer to draw them and put them? You must do what you feel is best but I would not advise drawing funds you do not need and accruing interest at a higher rate than you can earn just to have the funds sitting in an account somewhere else because you don't need them at the time.
  Reply to Michael
Mary D.
November 20th, 2019

My husband took out a reverse mortgage on our house. He passed away. He still had $19,000 left in his line of credit account. After he passed away, I tried to get the money, wouldn't give it to me. Where does this money go to?
Reply to Mary
- Michael Branson
  November 20th, 2019
  
  Hello Mary,
  
  There is no money "going" anywhere. It is just money that was never borrowed and not owed. Think of it like a credit card on which you had a $20,000 credit line available but only charged $10,000.
  If you repay the line, you only must repay the amount you actually used which is $10,000, not the line amount of $20,000. The other $10,000 didn't "go anywhere", it was not used and therefore you do not have to repay it when you close the card.
  The same is true of the remaining $19,000 on the line of credit on the reverse mortgage. The loan is now due and payable but that $19,000 was never used and therefore it is not part of that money due.
  Reply to Michael
craid d newton
July 23rd, 2016

if you have a reverse mtg and pay down the mtg side, can you add additional funds to the line of credit side?
Reply to craid
- Michael Branson
  July 24th, 2016
  
  I think the answer to your question is yes, but not exactly the way it's asked. Let me explain. To "add funds", you'd have to refinance the mortgage and get a higher Principal Limit which would only happen under certain circumstances which include an increase in the value of the home. However, if you pay down the balance on a line of credit loan, those funds may be re-borrowed so there are additional funds available under the original terms - even if no new funds have been added. I believe your question is just asking if you can re-borrow funds on a line of credit and the answer to that question is yes, without qualification. Look to your loan documents to be certain you understand the order I which any repayment will be applied to amounts owed.
  Having said that, it's also important to note that the line of credit will always grow based on the unused portion of the line. The end result is that you will have even more money available to you as the line grows on a higher unused portion.
  Reply to Michael
  - Bart
    July 19th, 2023
    
    I drew down $300k from a reverse mortgage line of credit and paid back $200k. The mortgage company is saying there is language that allows them not to reapply the money to the LOC, and therefore not available to me...do I need a lawyer?
    Reply to Bart
    - Michael Branson
      July 25th, 2023
      
      Hello Bart,
      You may have a proprietary or private reverse mortgage, not a HUD HECM (Home Equity Conversion Mortgage) reverse mortgage. Is that correct? If it is a private program, I only know some lenders' products. I cannot tell you what provisions for early repayments may be contained in the loan documents. Still, you should review your Promissory Note first. The Note will spell out your rights for early repayment under the loan. The HUD HECM is an FHA-insured reverse mortgage. It has no such verbiage that would allow the lender to make this determination. If your loan is an FHA-insured loan, the rights for early repayment are spelled out under section 6 of the Adjustable-Rate Note under 6.
      BORROWER'S RIGHT TO PREPAY.
      If your loan is a proprietary or private reverse mortgage program, you need to read the section that outlines your rights to prepay and how any early payments will be applied.
      If you still need help understanding the information after reviewing your legal documents or agreeing with the information that the lender has given you, then you may need to seek legal counsel, as people like me are unable to give legal advice.
      Your documents may answer all your questions, but that's where I would start.
      Reply to Michael