A tenure income plan distributes HECM reverse mortgage proceeds in the form of a monthly paycheck guaranteed for life (as long as program obligations are met).
A tenure plan is very similar to an annuity. In the case of an annuity, you give an insurance or investment company a lump sum investment and they give you a guaranteed income in return for life or a set number of years. The reverse mortgage tenure plan works in the same way, except the lump sum “investment” is the equity in your home.
Because tenure payments come with a lifetime guarantee, they’re often lower than what you might receive with a term income plan.
Tenure income is calculated on the assumption that you’ll live to age 99, but it’s guaranteed to continue even if you live longer than that.
Tenure income is also guaranteed to continue even if you use up all of the equity in your home. And if your loan balance exceeds the value of the home, not to worry! The HECM is a non-recourse loan; you, your heirs, and your estate are not the hook for the shortage if your home isn’t worth enough to settle the entire balance. Any shortage is covered by the FHA mutual mortgage insurance fund.
Many reverse mortgage applicants choose to split the proceeds between tenure income and a line of credit. This plan is called a modified tenure plan and can be a great way to add extra retirement income along with a reserve/emergency fund.
A tenure plan is only available through the variable-rate HECM. The variable-rate HECM is the most popular of the two main HECM products because it is more flexible and customizable. Borrowers can receive proceeds in the form of a line of credit, lump sum, term/tenure income, or some combination of all of these options. The fixed-rate HECM offers just the lump sum payout option.
Expert Tip
Picking the right income plan, whether it’s tenure or term, can be a little intimidating sometimes. Don’t feel like you’re stuck for the rest of your life with whatever plan you select at the start of the loan. The HECM is designed to change with your needs over time. If you need to restructure your plan or take out a lump sum, you can do that with a simple phone call to your lender.