Key Takeaways
- You are never locked into your initial payment choice on an adjustable-rate HECM.
- You can switch between a line of credit, term, or tenure payments at any time.
- Lenders typically charge a nominal fee (around $20) to recalculate the plan.
\n\nRetirement is unpredictable. The financial plan you make at age 62 will almost certainly need to be adjusted by age 75.
One of the greatest fears seniors have when setting up a reverse mortgage is choosing the "wrong" payout option. If I choose a line of credit today, but later develop dementia and need a fixed monthly check to pay for home care, am I out of luck?
Fortunately, the FHA designed the Home Equity Conversion Mortgage (HECM) to be incredibly adaptable. You can change your payment plan at any time.
The Flexibility of Adjustable-Rate HECMs
If you have an adjustable-rate reverse mortgage (which accounts for the vast majority of loans today), you are never permanently locked into your initial payout choice.
You can alter how you receive your remaining funds whenever your life circumstances change.
Common Scenarios for Changing Plans:
- Line of Credit to Tenure: You started with a line of credit for emergencies. Ten years later, your spouse passes away, and you lose their Social Security income. You call the lender and ask them to convert the remaining line of credit into a guaranteed monthly Tenure payment for life to replace the lost income.
- Tenure to Lump Sum: You have been receiving $800 a month for five years, but suddenly you need to replace your entire roof. You can stop the monthly payments and ask the lender to release a massive lump sum from your remaining equity to pay the contractor.
- Term to Line of Credit: You set up a 5-year term payment to bridge the gap to Social Security. After 3 years, you inherit some money and no longer need the reverse mortgage checks. You can stop the term payments and convert the remaining balance into a growing line of credit.
How Much Does it Cost to Change?
Changing your payment plan does not require a new appraisal, new closing costs, or a refinance. It is a simple administrative change.
HUD allows lenders to charge a nominal fee for recalculating your payment plan. This fee is strictly capped at $20 per change.
To initiate a change, you simply contact your loan servicer, tell them what you want to do, and they will mail you a document to sign authorizing the new payout structure. It is one of the most consumer-friendly features in the entire mortgage industry.\n