If I have a home with 100% equity and take on a reverse mortgage paying monthly payments, is it possible that my monthly payments stop before I die because my equity drops to zero?By Brian V. on 12.26.2018
That would depend on the type of loan you elected to receive. There are five options to obtain your reverse mortgage. You can take a fixed rate, a one-time, lump-sum draw of the funds available to you at the closing, known as the fixed rate reverse mortgage.
You can take a line of credit allowing you to withdraw cash until you take all the funds available to you. Once you have 0 funds available, you would still be able to live in the home without making a payment, but you would not be able to withdraw any additional funds, which is known as the line of credit plan.
Next, you may choose the Term option, a monthly payment of your choosing. This can be for any amount you want, but once you take all the funds available, there would be no additional funds left, and then, yes, your payments would stop.
The next option is the Tenure option. This is a monthly payment for life, and you don’t get to choose a payment; the HUD calculator determines your payment based on your age, interest rates, and property value (minus any loans and fees needed) to be paid). If you choose the Tenure option, you will receive a monthly payment for life. The amortization schedule you will receive will show you receiving payments until your 99th birthday, and it does not establish an available line that is depleting, as do the other options.
As I told you, there are five options, not just three. The other two are the Modified Term and the Modified Tenure.
If you decided to choose either of these options, you would select the amount of the funds you wanted to put in a line of credit to be used for whatever purpose you desire, and then the remaining funds would be used for the Term of Tenure payments.
The Term payment could still be for whatever amount you want, but the amount available for those payments would be reduced by whatever amount you placed into the line of credit. Because the Tenure payment is a payment for life, that payment would be declined due to less money being available to fund it.
So, the bottom line to answer your question is that if you want to avoid the possibility of your payments ever stopping before you pass, you need to look at one of the two Tenure payment options.