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Reverse Mortgage Payout Options: Lump Sum, Monthly Payments or a Line of Credit

Lump sum, monthly payments or a line of credit: how each HECM payout works and which rate type allows it.

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Talk to Maggie directly: cell (916) 549-3131 (text or call) · maggie@loveyoursurroundings.coMaggie B. Hopkins, NMLS #349517 · Surroundings NMLS #2528307

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How can you receive money from a reverse mortgage?

This page is general information, not legal, tax or financial advice for your situation. Rules can change, so every fact below names its source and date.

A HECM can pay you in several ways. Federal rules (24 CFR 206.19, checked October 22, 2026) list them:

Single lump sum. One payment at closing.
Tenure. Equal monthly payments for as long as the loan stays in good standing and you live in the home.
Term. Equal monthly payments for a set number of months that you choose.
Line of credit. Draw money when you want it, in the amounts you choose, up to what's available.
Modified tenure or modified term. Monthly payments plus a line of credit set aside for later.

The CFPB's page on HECM payment options (last reviewed July 11, 2022) explains the same choices in consumer terms. The right one depends on what the money is for.

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Which payouts come with a fixed rate, and which with an adjustable rate?

This is the most important fork in the road. Under 24 CFR 206.19(e), the single lump sum is available only on a fixed-rate HECM. The CFPB page above says the same thing the other way around. Line of credit and monthly payouts come with an adjustable rate.

A fixed-rate HECM has a few limits worth knowing:

You take your money at closing. The CFPB notes there is no line of credit growth feature with the lump sum.
Under 24 CFR 206.26(b)(2), you can't change to a different payment option later.
Under the definition of "principal limit" in 24 CFR 206.3, no more funds can be made available to you after closing, even though the limit keeps growing on paper.

An adjustable-rate HECM gives you more flexibility. After the first year, as long as your balance is below your principal limit, 24 CFR 206.26(b)(1) lets you ask to change from one payment option to another. A lender may charge a fee for the change.

When does a lump sum make sense, and when doesn't it?

A lump sum fits when you have one clear, large need. The most common is paying off an existing mortgage so the monthly payment goes away. Another is covering most of the price on a HECM for Purchase.

The CFPB (page last reviewed July 11, 2022) points out the downsides. Interest and fees start on the whole amount from day one. The amount may be lower than with other options. Younger borrowers may outlive the money. If you don't need all the cash right away, taking it all at once costs more.

How do tenure and term payments work?

Both pay you a set amount each month. The difference is how long.

Tenure payments continue as long as the loan is in good standing and you live in the home. For the math, 24 CFR 206.25(f) has the lender figure the payment as if it would run until the youngest borrower turns 100 (using age 95 as the cap on the starting age). But the payments keep coming after that, until the loan comes due. The payments can't push the balance above the maximum written in your mortgage.

Term payments last for a number of months you pick. A shorter term means larger monthly payments. A term can fit a known gap, such as the years before a pension starts or before you plan to move.

The CFPB notes that monthly payouts generally cost less than a lump sum, because interest and fees apply only to the money paid to you so far.

How does the line of credit grow?

This feature surprises most people, so here it is slowly. Your principal limit is the most the loan can provide. Under the definition in 24 CFR 206.3, it grows each month. The growth rate is the loan's interest rate plus the annual mortgage insurance rate. Under 24 CFR 206.25(g), the unused part of your line of credit grows at that same rate.

In words: if you open a line of credit and leave part of it unused, the amount you can draw later gets larger over time. The CFPB calls this the credit line growth feature (page last reviewed July 11, 2022). It can grow up to the maximum amount stated in your mortgage.

Two cautions. First, the growth is not interest paid to you. It is more room to borrow, and anything you borrow adds to your balance. Second, because it's tied to an adjustable rate, the growth rate changes as rates change. Nobody can promise how large it will become.

A line of credit is often used as a standby fund for home repairs, medical costs or a bad year in the markets. You pay interest and fees only on what you draw.

Can you combine monthly payments with a line of credit?

Yes. The modified tenure and modified term options pay you a set amount each month and hold part of your principal limit as a line of credit. 24 CFR 206.19(d) describes them. The CFPB also notes that a line of credit can be combined with a monthly payout.

For example, in words: you might set a modest monthly payment to cover a regular shortfall in your budget, and keep a line of credit for a new roof or a car. We can lay out a few combinations side by side so you can see how each one uses your principal limit.

Why can't you take everything in the first year?

HUD limits how much an adjustable-rate HECM pays out at closing and in the first 12 months. HUD's Mortgagee Letter 2013-27 (September 3, 2013) sets the limit as the greater of 60% of your principal limit, or your "mandatory obligations" plus 10% of the principal limit. 24 CFR 206.19(h) and 206.25(a) build that limit into the rules today, with HUD setting the percentages by notice (checked October 22, 2026).

Mandatory obligations are the costs you must cover to get the loan. They include the upfront mortgage insurance, the origination fee, other closing costs, and paying off any existing mortgage on the home. If your current mortgage is large, the second test lets you pay it off and still get access to a little more in year one.

After the first year, the rest of your available line of credit opens up. The point of the rule is to keep borrowers from using up their equity all at once.

The rules also set aside parts of the principal limit for specific needs, such as required repairs or a Life Expectancy Set-Aside for property taxes and insurance. Our reverse mortgage obligations page explains the set-aside.

How do you choose a payout that fits your plan?

Start with what the money is for, not with the loan. Ask yourself:

Is there one big bill, such as an existing mortgage, or an ongoing monthly gap?
How long do you expect to stay in this home?
Do you want money now, or a cushion you may never touch?
How would you feel if rates went up on an adjustable-rate loan?
What would you like to leave for your heirs?

Then compare. A home equity line of credit or a refinance may answer the same need with different trade-offs. If you're thinking about moving, look at whether it's time to downsize before you tie up the equity in this home.

How do you start comparing payout options?

Fill out the loan options form and choose "A reverse mortgage," or call Maggie's cell at (916) 549-3131. Maggie is a mortgage broker, so she can compare how different approved lenders price each payout option for your age and your home.

You'll also meet with an independent HUD-approved HECM counselor before the loan. Bring your questions about payouts to that session. You're free to choose any lender, and a first conversation is about whether a reverse mortgage fits you at all.

Frequently Asked Questions

Can I get a lump sum with an adjustable-rate HECM?

The single lump sum option is available only on a fixed-rate HECM under 24 CFR 206.19(e). Adjustable-rate HECMs offer monthly payments, a line of credit or a combination.

Does the unused line of credit really grow?

Yes. Under federal rules the unused line of credit grows at the same rate as the principal limit, which is the loan's interest rate plus the annual mortgage insurance rate. It is added borrowing room, not interest paid to you.

How much can I take in the first year?

For an adjustable-rate HECM, HUD's Mortgagee Letter 2013-27 limits first-year payouts to the greater of 60% of the principal limit, or your mandatory obligations plus 10% of the principal limit.

Can I change my payout option later?

With an adjustable-rate HECM, after the first 12 months you can ask to change options as long as your balance is below the principal limit. A fee may apply. With a fixed-rate HECM you cannot change.

Do tenure payments stop at a certain age?

No. The payment is calculated as if it would run to about age 100, but tenure payments continue as long as the loan is in good standing and the home is your principal residence.

Which payout option costs the least?

The CFPB notes that a line of credit or monthly payments generally cost less than a lump sum, because interest and fees apply only to money you have received. Your actual costs depend on the loan offer.