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Reverse Mortgage Glossary

Modified Term

Term payments distribute the proceeds from a variable-rate HECM in the form of a monthly paycheck guaranteed to last for a set period of time. Term payments aren’t guaranteed for life like tenure payments, so there’s a risk they could run out before the end of your life.

The advantage of going with a term plan is that you have more flexibility to set the exact payment or length of time you would like the payments to come in. Tenure payments, on the other hand, are calculated based on a set formula that you don’t have any power to change.

What is Modified Term?

A modified term plan is super easy to understand: it’s the combination of a term payment plan with a line of credit. This can be a nice set up for many reverse mortgage borrowers because it offers added monthly income and an additional cash account that can serve as a backup/emergency fund. On top of that, the line of credit will automatically grow and compound larger over time based on a growth rate.

Note that a term or modified term plan is only available on the variable-rate HECM. The fixed-rate HECM only offers a lump sum option.

Expert Tip

Picking the right payment plan, whether term, modified term, or tenure, can seem a little daunting. Nobody can predict what the future holds or what your future financial needs will be, but the good news is that the HECM can change with your financial needs. If you find you need to restructure your payment plan in the future, you can do that with a simple phone call to your lender.