A lump sum disbursement is one of many disbursement options available to you. This option works in relation to a fixed-rate HECM loan program, where a single lump-sum disbursement of your proceeds is given to you. You receive a fixed interest rate along with your entire loan proceeds upfront with this option. However, this option limits the amount of proceeds available to you. The permitted amount is limited to the first-years withdrawal limit. The remaining loan amount and proceeds are forgone. Though limiting the proceeds, this option helps preserve more of your home equity. The other disbursement options usually qualify the borrower for larger proceeds as they allow for more equity to be used.
One drawback of this loan program is if down the road you wish to tap into your remaining equity you have to obtain a new reverse mortgage.
Let’s look at an example of how a HECM Lump Sum can benefit you.
Jerry has a $500,000 investment portfolio and a mortgage of $200,000. He’s ready to retire but he can’t afford to live off his fixed income. His home is worth $450,000 and he plans to live out his remaining years there. He’s considering withdrawing money from his portfolio to pay off his mortgage.
A reverse mortgage can be used to eliminate his mortgage payment and allow Jerry to retire. Because Jerry still has a mortgage on his home and is only 62 years old, he is only able to eliminate his mortgage payment. This reduction of $2,000 a month from his cash out-flow now allows him to live comfortably on fixed income.