Tenure Vs Term

Of the many ways a borrower may receive their funds, there are advantages and disadvantages to receiving funds by either tenure or term.

First, let’s look at receiving your money with tenure.  If the borrower selects to receive the proceeds from the HECM loan with the tenure option, he or she will receive the monthly tenure payment for as long as they stay in their home as their permanent residence.  The payment will continue even it the total of the payments exceed the value of the home.  Regardless of the balance of the HECM loan, when the borrower or borrowers leave the residence, they nor their heirs will ever owe more than the home sells for at market.  This can be a comforting feature bringing peace of mind to the borrower as well as to their heirs.  Also comforting is the fact that the payments will continue regardless of the length of time the borrower stays in their home.

The term payment option is similar to tenure in that there are monthly payments made to the borrower and neither the borrower nor their heirs will ever owe more than the home sells for at market.  The big difference between the “term” and the “tenure” option for receiving funds is that the term option is for a set period of time.

Let’s take an example of a borrower, Bob D, age 66  who has a home which appraised at $350,000, with no mortgage.  If the Bob wants to receive the tenure payment, he would be able to receive approximately $739. per month for as long as he remains in the home as his residence.  But let’s say that Bob, who is the only heir to his ailing mother’s estate, would like the extra income before actually receiving his pending inheritance.  Bob is quite confident that at most his mother only has a couple of years left.  Knowing that he will inherit a substantial estate, Bob takes the conservative approach and elects to receive the HECM funds on a 96 month term option.  Instead of receiving the $739. per month with the tenure option, he will be receiving approximately  $1,875. per month for the next 8 years. The borrower must carefully consider and understand both the benefits and the drawbacks of selecting either term or tenure as an option.  Of course, with all HECM loans, the borrower is responsible to pay taxes and insurance as well as maintaining the property.

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