A reverse mortgage allows homeowners aged 62 or older to convert part of their home equity into cash, with no monthly mortgage payments required.

The most popular type in 2025 remains the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration.

Borrowers can receive funds in several ways: lump sum, monthly payments (term or tenure), a line of credit, or a combination of these. The right plan depends on your financial situation, goals, and risk tolerance.

Payment Plan Options: Deep Dive

Lump Sum Payment

This option provides all available funds at once, typically at a fixed interest rate. It's often chosen to pay off large debts or major expenses. However, it comes with higher costs since interest accrues on the full amount from day one, and there's no credit line growth features.

Line of Credit

A flexible, adjustable-rate option, the line of credit allows you to draw funds as needed. Unused credit grows over time, expanding your borrowing power—a unique feature compared to traditional loans. This plan is popular with a majority of HECM borrowers, according to the National Council on Aging, because it offers both flexibility and potential for future financial needs. Interest is only charged on withdrawn amounts, making it cost-effective for those who don't need all their funds immediately.

Term Payments

With term payments, you receive fixed monthly payouts for a set period (e.g., five or ten years). This approach can be ideal for bridging income gaps, such as delaying Social Security benefits to maximize payouts. The payment amount is determined by your age, home value, and current interest rates.

Tenure Payments

Tenure payments provide fixed monthly payouts for as long as you live in your home. This option offers lifelong income security, regardless of home value fluctuations or loan balance. It's particularly attractive for retirees seeking predictable, steady cash flow.

Combination Plans

Modified term or tenure plans blend monthly payments with a line of credit, offering both regular income and access to emergency funds. This hybrid approach can help balance immediate needs with long-term financial flexibility.

Key Considerations Before Deciding

Longevity Risk: Outliving your reverse mortgage funds is a real concern, especially with lump sum or term plans. Tenure payments or a line of credit with growth features can help mitigate this risk.

Interest and Fees: Reverse mortgages accrue interest and fees over time, reducing home equity and potentially impacting heirs' inheritance.

Taxes and Insurance: Borrowers remain responsible for property taxes, homeowners insurance, and maintenance. Failure to keep up with these can lead to foreclosure, even with a reverse mortgage in place

Counseling Requirement: Federal law mandates counseling with a HUD-approved advisor before finalizing a HECM, ensuring borrowers fully understand the implications and options.

Expert Advice and Real-World Guidance

Financial Planner Michael Kitces notes, "Reverse mortgages should be integrated into a broader retirement plan, not used as a last resort. The payment plan you choose must align with your income needs, spending habits, and risk profile."

Retirement-income researcher Wade Pfau adds, "Opening a HECM line of credit early and deferring its use can provide powerful downside protection when markets fall."

Matching the Plan to Your Needs

Immediate, Large Expense: Lump sum may be suitable, but beware of higher costs and the risk of exhausting funds early.

Supplemental Income: Tenure or term payments provide steady cash flow, ideal for covering ongoing living expenses.

Flexibility and Emergency Access: A line of credit offers the most adaptability, with the added benefit of credit growth over time.

Combination Needs: Modified plans can be tailored to provide both regular income and a safety net.

Choosing a reverse mortgage payment plan is a highly individualized decision. It requires careful assessment of your financial situation, long-term goals, and risk tolerance. As the Consumer Financial Protection Bureau notes, "A reverse mortgage is not free money. It is a loan that you, or your heirs, will eventually have to pay back, usually by selling your home." Seek advice from trusted professionals, weigh all options, and ensure your choice aligns with your retirement strategy and peace of mind.