Quick Answer
Reverse mortgage proceeds are disbursed after the rescission period expires — with existing mortgages and liens paid directly to the lienholders and net cash proceeds available to the borrower as a lump sum, wire transfer, check, or established line of credit depending on the chosen payment plan.
- Funding occurs after the 3-day right of rescission expires (approximately 10 days in California).
- Existing mortgages and liens are paid directly to the lienholders from escrow.
- Net proceeds to the borrower are available as a lump sum, wire, check, or line of credit.
- The line of credit becomes accessible the day funding is confirmed.
- Fixed-rate HECM: funds disbursed in a single lump sum at funding.
- Adjustable-rate HECM: line of credit and monthly payment options available.
Key Facts
| Topic | Key Fact |
|---|---|
| Funding timing | After rescission period expires — approximately 10 days post-closing in California |
| Lien payoffs | Paid directly to lienholders from escrow |
| Net proceeds options | Lump sum, wire transfer, check, line of credit access |
| First-year draw limit | 60% of principal limit — mandatory payoffs exempt |
| Line of credit access | Available immediately upon funding confirmation |
| Tenure payments | Begin within 30 days of funding if selected |
| Fixed-rate lump sum | Full available amount disbursed at funding |
| Wire transfer timing | Same or next business day after funding confirmation |
Detailed Explanation
Funding is the final stage of the reverse mortgage process — occurring after the rescission period expires with no cancellation received. The title company or escrow officer receives authorization from the lender and simultaneously processes all disbursements: payoff amounts wired to existing lienholders, closing costs paid to service providers, and net proceeds released to the borrower.
For borrowers with existing mortgages, the first thing that happens at funding is the payoff of the existing mortgage. The borrower's old lender receives payment from escrow, processes the payoff, and releases the old lien (the deed of trust reconveyance) — typically within 30 days of receiving payment. The borrower should continue making regular mortgage payments on the existing loan until funding is confirmed to avoid late payment consequences; after funding, no further payments are made.
The disbursement of net proceeds to the borrower depends on the chosen payment plan. For a fixed-rate HECM, the entire available amount (after payoffs and costs) is disbursed as a single lump sum at funding — either as a check or wire transfer. For an adjustable-rate HECM with a line of credit, the available credit becomes accessible immediately after funding, and the borrower can draw from it as needed. Monthly tenure or term payments begin within 30 days of funding if selected.
The first-year draw limit applies to the disbursement of adjustable-rate HECM proceeds. In the first 12 months after closing, the borrower can draw a maximum of 60% of the principal limit (or the mandatory obligations plus 10%, whichever is greater). After 12 months, the full remaining principal limit becomes accessible. This restriction was implemented by HUD to reduce the risk of early depletion of the principal limit, which had been identified as a factor in some HECM defaults.
Jay Zayer, CRMP — 18 Years Experience
The funding day call is one of the most satisfying in my practice. I call clients when funding is confirmed and walk through exactly what happened: your mortgage is paid off as of today, your line of credit is active as of today, your net cash will arrive by wire tomorrow morning. The relief in the voice of a borrower who has been managing a mortgage payment on Social Security income — and who will never write another mortgage check — is the reason I do this work.
Who This Is Right For
This may be a good fit if:
- Every reverse mortgage borrower approaching funding who wants to understand how and when proceeds arrive
This may NOT be the right fit if:
- There is no situation where understanding the disbursement process would be inappropriate
Common Misconception
Myth: You receive all reverse mortgage money on the day you sign.
Fact: Signing is not funding. The right of rescission period must expire (approximately 10 days in California) before any money is disbursed — including existing mortgage payoffs.
Source: HUD HECM funding guidelines; Truth in Lending Act
Authoritative Sources
- HUD: HECM disbursement guidelines — hud.gov
- CFPB: Reverse mortgage funding — consumerfinance.gov
- Truth in Lending Act: Right of rescission — federalreserve.gov
People Also Ask
When do I receive the reverse mortgage money?
After the rescission period expires — approximately 10 days after closing in California. The line of credit is accessible the day funding is confirmed; cash wires typically arrive the next morning.
Do I need to keep making mortgage payments after closing?
Continue making your regular mortgage payments until you receive confirmation that the existing mortgage has been paid off through the HECM funding. Your old lender will process the payoff upon receiving the wire from escrow.
How is the reverse mortgage line of credit disbursed?
The line of credit is established at funding and becomes accessible immediately. You draw from it as needed — by phone, online, or by mail — in amounts of your choosing above any minimum draw requirement.