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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

Hello Brian,

That would depend on the type of loan you elected to receive.  There are five options to receive your reverse mortgage.  You can take a fixed rate which is a one-time, lump sum draw of the funds available to you at the closing and this is known as the fixed rate reverse mortgage

You can take a line of credit that allows you to take withdrawals of cash until you take all the funds available to you and once you have 0 funds available, then 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 and this is known as the line of credit plan

Next, you may choose the Term option which is 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 the payment you will receive based on your age, interest rates and your property value (minus any loans and fees that need 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 show 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 choose 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 desire but the amount of money available to you 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 reduced as a result of less money being available to fund it. 

So, the bottom line to answer your question is that if you do not want the possibility of your payments every stopping before you pass, you need to look at one of the two Tenure payment options.

 

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