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Felicia Said:

If my dad takes out a reverse mortgage of 40,000 on a line of credit, and pays 750.00 a month...?

We Answered:

yes, this is a reverse mortgage. your home does NOT have to be free and clear, and while you do not have to make monthly mortgage payments, you can in the adjustable program.

assuming he only takes out $40k from his LOC, and the adjustable rate remains at 3% constant, and he pays around $750 every month, it would take him about 5 years to pay it back. most banks don't want you to do it; they are not set up to track payments; but if you do, they prefer payments in big chunks.

remember though that aside from the interest, there is a 1.25% annual charge of mandatory mortgage insurance (required by FHA/HUD), and some lenders still charge a monthly servicing fee.

if he doesn't need all the money, then as you say, he may want to stay with the adjustable rate, as long as he is comfortable with rate volatility.

or, he may want to try a new HECM product that just came out called the HECM Saver. Even if your dad is eligible for $80,000 - by choosing to access only $40,000, he can save substantially in closing costs (upfront MI is only 0.01% instead of 2.0%). Tell him to ask his broker about this new program.

for what it's worth, you can still get a fixed rate today for as low as 4.99%. but with the fixed rate, if you pay it back, you can no longer access the funds, unlike a LOC.