A term income plan distributes HECM reverse mortgage proceeds in the form of a monthly paycheck guaranteed for a set amount of time (as long as program obligations are met).
Unlike tenure income, a term income plan does not come with a lifetime guarantee; there is a risk you could outlive the income. However, because term income doesn’t have a lifetime guarantee, it is often higher than what you might receive through a tenure plan. The advantage here is that you have more flexibility to set the exact dollar amount or length of time that you would like to receive the income.
Term income is guaranteed to come in even if home values fall and you no longer have any equity in your home. And don’t forget that a reverse mortgage is a non-recourse loan. You, you heirs, and your estate are not on the hook for any shortage if your home isn’t worth enough to settle the entire loan balance. Any shortage is paid off by FHA.
Many reverse mortgage applicants choose to split the proceeds between term income and a line of credit. This plan is called a modified term plan and can be a great way to add extra retirement income along with a reserve/emergency fund.
A term 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.
A term plan is a great income option
A HECM term income plan is a great way to get extra monthly income for a set dollar amount or period of time. Many seniors use a reverse mortgage income plan on a temporary basis until another income source kicks in or they can qualify for Medicare.
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.