What is a Tenure Annuity?

Published by Thomas Herold in Investments, Retirement

'Tenure Annuity' is explained in detail and with examples in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A Tenure Annuity is a type of reverse mortgage monthly payment plan. This program delivers cash payments that are consistent to the home owning seniors for an unlimited amount of time until they pass away or move out of the house. The agreement remains in force up to the point that both spouses leave the house that backs the loan. Tenure payment amounts are usually fixed based on the primary borrower’s age.

Such a tenure annuity can be crucial for those seniors who do not have much monthly income or savings. They likely still want to take advantage of activities which provide an active and enjoyable retirement. The monthly payments from these tenure annuities can be used at the discretion of the borrower. They might use them to supplement benefits from social security. Medical costs can be paid with them. Seniors can work to pay down debts using the funds or to improve, renovate, or repair their home. They can even put them to use for leisure activities and travel opportunities.

Financial planners often advise seniors to increase their retirement income streams using  a tenure annuity. This is because the income from private pensions and/or social security is often insufficient to meet their expenses and desires. There are many benefits to these plans. One of the most important is that they deliver a guaranteed and predictable monthly payment that boosts other income sources.

A tenure annuity has numerous other advantages. The money will be provided for as long as the borrowers live in the house, whether this is for from a few months to several decades. The arrangement is fully covered and backed by the FHA Federal Housing Administration. The borrowers continue to enjoy complete and unrestricted use of their house that is tied to the reverse mortgage. There is no burden of monthly mortgage payments as with a traditional mortgage loan. Finally, there are no additional collateral requirements besides the house itself.

One of the valuable characteristics of a tenure annuity is that the debt builds up against the home slowly. The equity for the future payments remains in the house until it is needed. This means that the estate of the borrowers will be significantly greater if they die early than for a senior who simply took out the maximum cash value in the reverse mortgage.

A tenure annuity also provides flexibility for the senior borrower. These participants are able to modify the transaction by simply paying a minor $20 fee to the loan servicer.

As an example, a borrower who determines he or she will not require the monthly tenure payment amount for some time can change the house’s unused equity over to a credit line. The credit line increases in size every month as the payment amounts of the annuity build up in the line. In a case where the opposite is true, seniors who require bigger payment amounts are able to switch over into the term annuity from the line of credit.

Another useful feature of the tenure annuities is that they protect the value of the property from declining. Whether the borrower chooses the monthly payments, the credit line, or switches back and forth, the protection remains the same. Thanks to the FHA coverage of the reverse mortgage, the borrower is not liable for any declines in the value of the home.

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The term 'Tenure Annuity' is included in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.