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Reverse Mortgage - Supplement income with a tenure annuity

Supplement Income With a Tenure Annuity

All reverse mortgage models before the HECM were designed to provide seniors with additional monthly income for as long as they lived in their house, and the HECM offers this option, called a tenure annuity. The monthly payment continues until the borrower dies or moves out permanently.

A valuable feature of the tenure annuity is that, relative to cash withdrawal, debt accumulation in the early years is slower because equity is needed for future payments. For example, after 5 years, the debt of a 72-year old who takes the largest possible tenure annuity is only about one-third as large as the senior who withdraws the maximum amount of cash. This means that if the borrower dies early, her estate is substantially larger if she had taken the tenure annuity.

Further, seniors who take a tenure annuity can modify their transaction at any time by paying $20 to the servicer. For example, the senior who finds that the monthly tenure payment won’t be needed for awhile can switch the unused equity to a credit line, which will grow in size from that point on. In the opposite case, the senior who needs a larger payment can switch to a term annuity.

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