The Tenure Payment option of a HECM and some other Reverse Mortgages allows you to receive a monthly benefit payment for as long as you live and continue to reside in the home. These payments are a perfect way to receive a set amount off cash every month to supplement your income.
On a HECM the monthly payments are guaranteed by the Federal Government. If your lenders goes bankrupt or fails to send your payments, the Federal Government will step in and make sure you receive all the money you are due. This is one of the key benefits of the HECM loan. If you take tenure payments on any other reverse mortgage product you are depending solely on that lender. If the lender is unable to unwilling to make you payments, you do not have the protection of the Federal Government. For this reason, if you are seeking a reverse mortgage that is not government insured, I would suggest taking all of your cash up front.
You will receive more money through the tenure payment option, and pay less interest. The interest only accrues on the funds as you receive them. The calculations mandated by HUD for HECM reverse mortgages takes this into account and gives you access to more money.
As an example we had a client recently who was 62 and was eligible for either 106,000 cash up front or $590.72 per month for life. If they lived to be 90, they would receive a total of 198,481.00. You can see the extra cash created over time. The alternate situation to consider is investing the 106,000 - what would the value be in 28 years? This depends on the returns available in the market, these are the choices you must analyze and consider when deciding on a reverse mortgage. With the HECM tenure option the return and the payments is GUARANTEED by the government, you don't run the risk of losing the money through poor or under performing investments.