What Is a Tenure Payment Plan?

A tenure payment plan is a way for a borrower to receive reverse mortgage proceed𓆏s in equal monthly payments for as long as one borrower lives in the home. Under the ten💃ure payment plan, homeowners 62 years or older can convert their home equity into a monthly stream of income.

In return, the lender charges the borrower an 澳洲幸运5官方开奖结果体彩网:adjustable interest rate,♔ and monthly🍃 payments are calculated under the assumption that the borrower will live to be 100 years old. 

A reverse mortgage tenure plan is ideal for those in retirement who want to remain in their home for the rest of their lives and earn a fixed income stream to use for any purpose, including paying bills, medical expenses, and home repairs. However, reverse mortgages come with interest and fees that reduce your home equity and borrowing power over time.

Understanding Tenure Payment Plans

A reverse mortgage is a type of home loan available to homeowners age 62 or older that borrows against your home equity to provide cash or income. Homeowners can receive the proceeds from a reverse mortgage as a lump sum, a fixed monthly payment, or a 澳洲幸运5官方开奖结果体彩网:line of credit.

Unlike a 澳洲幸运5官方开奖结果体彩网:traditional mortgage used to buy a home, a reverse mortgage doesn’t require the homeowner to make any loan payments. Instead, the mortgage lender pays the homeowner and charges interest and fees for processing the loan. The loan gets repaid when the homeowner sells the home, moves༒ out, or passes away.

With a traditional mortgage, you make monthly payments that reduce the amount you owe, helping you build equity or ownership in the home. Conversely, a reverse mortgage pays you, and your equity decreases over time. The tenure payment plan converts your home equity into an income stream of equal monthly installments for as long as you live in the home.

Interest Cost

In return for paying the borrower fixed monthly payments under the tenure payment plan, the lender charges interest via an adjustable or variable interest rate. If you want a 澳洲幸运5官方开奖结果体彩网:fixed interest rate, you would need to choose the 澳洲幸运5官方开奖结果体彩网:single-disburཧsement lump-sum payment pla༺n, which pays you a lump sum at the loan closing.

The tenure plan can help borrowers pay less in total interest versus a lump-sum plan since the homeowner borrows money gradually. However, it could cost more than the single-disbursement plan, depending on how long the borrower remains in the home and how the adjustable rate changes over time.

The amount of 澳洲幸运5官方开奖结果体彩网:interest owed in the long run may no𝐆t be a concern for borrowers who choose the tenure payment plan if they plan on remaining in the home for the remainder of their lives, aging in place. A reverse mortgage tenure payment plan offers a stable and predictable monthly income stream, preventing the homeowner from worrying about running out of money.

Tenure Plan Length

The borrower’s monthly payments under the tenure plan are calculated as if the borrower will live to be 100. 澳洲幸运5官方开奖结果体彩网:Should the borrower live past 100, they will continue receiving payments for life under this payment plan. If the borrower has a shorter life expectancy, a 澳洲幸运5官方开奖结果体彩网:term payment plan, which provides fixed monthly payments for a set number of years, can allow the homeowner to receive higher monthly payments.

Special Considerations

When considering a reverse mortgage, be sure to review whether you will take out the loan for yourself or you and your spouse will be co-borrowers. 🎐Also, the costs a🌺nd fees of a reverse mortgage can be significant.

Individual Borrower vs. Co-borrowers

If two borrowers are on the reverse mo♎rtgage, the surviving borrower will continue to receive payments for life under the tenure plan, even aft🍒er the first borrower dies.

However, if only one of the two homeowners is a reverse mortgage borrower and the borrower dies first, the surviving homeowner will not receive any further payments since they were not a borrower. This scenario has created problems for some households where an older spouse took out a reverse mortgage in their name only.

Reverse Mortgage Costs

Be sure to consider the costs associated with reverse mortgages, which include an upfront mortgage insurance premium (MIP) that equals 2% of your home's value due at the loan 🐬closing and a 0.50% annual MIP on the outstanding loan balance thereafter.

Also, the lender charges an origination fee to process the loan, capped at $6,000. Other 澳洲幸运5官方开奖结果体彩网:closing costs include taxes and insurance, as well as title, appraisal, and credit check fees.

Pros and Cons of Tenure Payment Plans

A reverse mortgage tenure payment plan comes with advan♔tages and disadvantages.

Pros

• Fixed income stream: Tenure payment plans allow retirees and others age 62 and older to enjoy steady income while continuing to live in their homes.
• Avoid overspending: By spacing out payments, they also eliminate some of the dangers of having too much free cash available. These include overspending on vacations, being asked to provide a down payment for a child’s mortgage, and even being taken in by scams.
• Prevent outliving your income: Tenure payment plans can also prevent retirees 澳洲幸运5官方开奖结果体彩网:from ru꧟nning out of income if they live longer than expected because borrowers receive payments for life.

Cons

• Not inflation-adjusted: A tenure payment plan combines the features of a term payment plan with those of a standard annuity, so it suffers from their drawbacks. Fixed payments may sound appealing until one considers 澳洲幸运5官方开奖结果体彩网:inflation. Even if a contract provided for inflation adjustments based on the 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI), the local cost of living could still rise faster.
• Low payment: The tenure payment plan might provide too little income to cover major expenses, such as medical costs or home repairs.
• Interest accrues: Interest on the borrowed payments and the annual and 澳洲幸运5官方开奖结果体彩网:up-front mortgage insurance premium. Also, lender fees and 澳洲幸运5官方开奖结果体彩网:closing costs add to the borrowed amount, reducing your home equity.

The Bottom Line

Reverse mortgage loans help homeowner𓆏s aged 62 or older convert their home equity into income. Unlike a traditional mor🦋tgage, where you repay the lender monthly payments, a reverse mortgage pays the borrower. The lender charges interest and fees, which get added to the loan balance, reducing the home equity.

With a tenure payment plan, the borrower receives income from a reverse mortgage in equal monthly installments. A tenure payment plan can help those looking for retirement income and plan on remaining in their home.