Reverse Loan Tenure Option
At last, I am posting the final section of an article that was recently published in the Journal of Personal Finance. It was very long and I could not share it in it’s entirety on this site.
So I broke it up into seven parts and this is the last bit of it. Overall, it’s in interesting commentary on comparing using the Tenure payment option from a Reverse loan in lieu of receiving payments from an annuity.
New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted By Jason Oliva On March 3, 2016
“Because of the assumption that withdrawals are taken from savings before tapping the line of credit, the line of credit option depletes savings but leaves some home value. Tenure, on the other hand, depletes home value more and leaves remaining savings.
“Overall, the tenure option does somewhat better than the LOC in terms of both consumption and bequest measures,” researchers state. “This reflects tenure not depleting savings and thereby leaving more money invested in stocks, the potentially highest return asset.”
Because the tenure option pays out a higher rate than the SPIA, the study indicates it is necessary to allocate $238,061 for SPIA purchase, compared to the $201,174 borrowing limit used to generate tenure payments.
The SPIA option leaves median consumption about the same, but does reduce consumption risk, according to researchers who note that under the SPIA home value is preserved for late-in-life needs or a bequest.
“If the goal is to maximize consumption without a bequest concern, the reverse mortgage options win out over the SPIA,” the study states. “If bequests are important, the decision requires evaluating tradeoffs between consumption and bequest.”