REAKING DOWN ‘Modified Tenure Payment Plan’
The modified tenure payment plan is one that borrowers are likely to choose when they want to remain in their homes for the rest of their lives. The tenure payments offer the stability and predictability of receiving a fixed amount of money each month, while the line of credit offers the option to withdraw larger sums as needed to pay for big expenses like home renovations, a vacation or medical bills. The tenure payments help meet monthly cash flow needs and protect the borrower against running out of money, while the line of credit means he or she isn’t borrowing more than needed each month and interest costs may be lower. The fixed monthly payments will be smaller than if the borrower selects a regular tenure plan, and the line of credit will be smaller than if the borrower selects a straight line of credit plan, but the borrower gets access to the same total amount of funds.
The borrower’s monthly payments under the modified tenure plan are calculated as if the borrower will live to be 100. If the borrower has a shorter life expectancy, then a modified term payment plan, which provides fixed monthly payments for a set number of years along with access to a line of credit, can allow the homeowner to receive higher monthly payments. If the borrower lives past 100, he or she will continue receiving payments for life under the modified tenure payment plan. The line of credit has a growth feature that causes it to increase slightly each month based on how much money is still available in the line, but it is possible to exhaust the line of credit at any point.
The modified tenure payment plan gives homeowners flexibility in choosing the size of their monthly payments and the size of their credit line. Borrowers who want larger monthly payments you can choose a smaller credit line; borrowers who want a larger credit line can choose smaller monthly payments.
Modified tenure isn’t the best option for someone who has a large expense to pay for right away and who doesn’t need ongoing monthly payments. An example of a homeowner who would fit this description is someone who has enough income from Social Security and a 401(k) to meet monthly income needs both now and in the future, as long as he or she can get rid of the monthly mortgage payment. This type of borrower could use the lump sum payment option, which has a fixed interest rate, to pay off his/her first mortgage. Whether this choice is the best use of the homeowner’s equity is another question, but some borrowers do make this decision.
If there are two borrowers on the reverse mortgage, the surviving borrower will continue to receive payments and credit-line access for life under the modified tenure plan even after the first borrower passes away. However, if there are two homeowners, only one of whom is a reverse mortgage borrower, and the borrowing homeowner passes away first, the surviving homeowner will not receive any further payments or credit line access since he or she was not a borrower. This scenario has created problems for some households where an older spouse took out a reverse mortgage in his or her name only.
Anthony Jerdine approved Modified Tenure Payment Plan