Reverse Mortgage Payout Options: Lump Sum vs Line of Credit vs Monthly [2026]

The Five HECM Payout Options

1. Lump Sum (Fixed Rate)

Receive the entire available amount at closing with a fixed interest rate.

How It Works

• Full principal limit disbursed at closing
• Fixed interest rate locks in for life of loan
• No additional draws available later
• Interest accrues on full amount from day one

Best For

• Paying off a large existing mortgage balance
• Major one-time expenses (medical bills, home modifications)
• Those who prefer rate certainty over flexibility

Considerations

• Cannot access additional equity later, even if home value rises
• Interest accrues on full amount immediately
• No growth feature (unlike line of credit)
• Loan balance grows faster since full amount is drawn

2. Line of Credit (Adjustable Rate)

Access funds as needed with the unique growth feature—unused funds increase over time.

How It Works

• Available credit established at closing
• Draw any amount at any time (minimum draws may apply)
• Unused portion grows at same rate charged on loan
• Only pay interest on what you've borrowed
• Adjustable interest rate

The Growth Feature Explained

Best For

• Creating a growing financial safety net
• Uncertain or variable future expenses
• Maximizing flexibility
• Those who don't need funds immediately

Considerations

• Adjustable rate means interest charges can increase
• Requires discipline not to over-draw
• Growth feature is extremely valuable—think carefully before taking lump sum instead

3. Tenure Payments (Monthly for Life)

Receive equal monthly payments for as long as you live in the home as your primary residence.

How It Works

• Fixed monthly payment amount
• Payments continue for life (as long as you meet loan obligations)
• Based on actuarial calculations using your age
• Payments continue even if they exceed your home equity

Best For

• Supplementing monthly retirement income
• Creating predictable cash flow
• Those concerned about outliving their savings
• Replacing pension or Social Security gaps

Considerations

• Monthly amount is fixed—no inflation adjustment
• Cannot access additional lump sums (unless you switch options)
• Payments stop if you permanently leave the home

4. Term Payments (Monthly for Set Period)

Receive equal monthly payments for a specific number of years you choose.

How It Works

• You choose the payment period (5, 10, 15 years, etc.)
• Higher monthly payments than tenure (same amount over shorter period)
• Payments stop at end of term (but you can stay in home)
• Can be combined with line of credit

Best For

• Bridging to other income sources (Social Security at 70, pension start date)
• Covering specific time-limited expenses
• Those who want higher monthly payments than tenure offers

Considerations

• Payments end at term conclusion—plan accordingly
• No inflation adjustment
• Consider combining with line of credit for backup

5. Combination Plans

Combine any of the above options to customize your payout structure.

Popular Combinations

• Line of credit + tenure: Monthly income plus emergency access
• Line of credit + term: Higher monthly for set period plus backup fund
• Initial lump sum + line of credit: Pay off mortgage, keep remaining as credit line

Best For

• Those with multiple financial goals
• Wanting both income stability and flexibility
• Paying off existing mortgage while preserving options

Comparing Payout Options

Why the Line of Credit Is Often Recommended

Financial planners often recommend the HECM line of credit because of its unique advantages:

1. Growth Feature Creates Larger Safety Net

Unlike any other financial product, the HECM line of credit grows over time even without home appreciation. This creates a potentially larger pool of funds as you age—exactly when you may need it most.

2. You Only Pay Interest on What You Use

With a lump sum, interest accrues on the full amount immediately. With a line of credit, you only pay interest on funds you've actually drawn. This can significantly slow loan balance growth.

3. Flexibility for Unknown Future

Healthcare costs, home repairs, family needs—the future is uncertain. A line of credit provides access when needed without requiring you to take funds you may not use.

4. Can Be Combined with Other Options

You can set up tenure or term payments while keeping a line of credit as backup, giving you both steady income and emergency access.

5. Protection Against Home Value Decline

Once your line of credit is established, it cannot be frozen or reduced due to home value decline (unlike a HELOC). The growth feature continues regardless of market conditions.

When to Choose Other Options

Choose Lump Sum When:

• You have a large existing mortgage to pay off
• Rate certainty is more important than flexibility
• You have a specific large expense (home modification, medical)
• You understand and accept losing the growth feature

Choose Tenure Payments When:

• Supplementing monthly income is your primary goal
• You want guaranteed income for life
• You prefer simplicity over flexibility
• Consider combining with small line of credit for emergencies

Choose Term Payments When:

• You need to bridge to other income (delaying Social Security to age 70)
• You have time-limited expenses
• You want higher monthly payments than tenure provides
• You have other resources for after the term ends

Changing Your Payout Option

You can change your payout option after closing, with some limitations:

What You Can Change

• Line of credit to tenure or term (and vice versa)
• Term length adjustments
• Adding or removing line of credit component

What You Cannot Change

• Fixed-rate lump sum to adjustable-rate options (would require refinance)
• Cannot increase total available beyond original principal limit

Cost to Change

A small administrative fee (typically $20) applies to change payment plans. Changes must be requested in writing to your servicer.

Frequently Asked Questions

What is the best reverse mortgage payout option?

The line of credit is often recommended because of its unique growth feature—unused funds grow over time at the same rate charged on the loan. However, the best option depends on your specific needs: lump sum for paying off a large mortgage, tenure payments for steady income, or combinations for flexibility.

Can I change my reverse mortgage payout option later?

Yes, you can change your payout option after closing for a small fee, as long as you have available funds remaining. You cannot switch from a fixed-rate lump sum to an adjustable-rate option without refinancing.

What is the line of credit growth feature?

The line of credit growth feature is unique to HECM reverse mortgages. Your unused credit line grows at the same rate being charged on your loan balance (interest rate plus mortgage insurance premium). This means your available funds increase over time, even if your home value doesn't.

Do tenure payments last my entire life?

Yes, tenure payments continue for as long as you live in the home as your primary residence and meet the loan obligations. Even if the payments exceed your home equity, you continue receiving them—this is part of the FHA insurance protection.

What happens if I take a lump sum and home values increase?

With a fixed-rate lump sum, you cannot access additional equity later, even if home values rise significantly. With an adjustable-rate line of credit, you could potentially refinance to access more equity.

Next Steps: Choosing Your Payout Option

Choosing the right reverse mortgage payout option is an important decision that affects your financial flexibility for years to come. Required HUD counseling will help you understand these options in detail before you apply.