Loan Disbursement Options and Payment Plans Flashcards

A HECM borrower currently on a line of credit wishes to switch to a tenure payment plan. What is the correct procedure?

Answer: Request a payment plan change through their loan servicer

Borrowers with adjustable-rate HECMs can request a payment plan change from their servicer at any time; this is a built-in flexibility feature of HECM products.

Each time a HECM borrower makes a draw from their line of credit, what is the direct financial effect on the loan?

Answer: The outstanding loan balance increases by the draw amount

Each line of credit draw increases the outstanding loan balance, which then accrues interest and MIP until the loan becomes due and payable.

How does the servicer calculate the monthly tenure payment amount for an eligible HECM borrower?

Answer: Using the remaining principal limit and current interest rate, assuming the youngest borrower lives to age 100

Tenure payments are calculated based on the remaining principal limit and current interest rate, assuming the youngest eligible borrower will live to age 100, ensuring payments can continue for that timeframe.

What is the primary advantage of a tenure payment plan compared to a term payment plan for a borrower concerned about longevity risk?

Answer: Tenure payments continue for as long as the borrower lives in the home, regardless of how long that is

With a tenure plan, the borrower receives payments for as long as they live in the home as their primary residence, eliminating the risk of outliving the disbursement period.

Under what specific condition may a HECM borrower draw more than 60% of their principal limit in the first 12 months?

Answer: If mandatory obligations plus 10% of the principal limit exceed the 60% threshold

If a borrower's mandatory obligations (existing liens, closing costs, required set-asides) plus 10% of the principal limit exceed 60%, they may draw the full amount needed to satisfy those obligations.

A HECM borrower established a line of credit 10 years ago and has made no draws whatsoever. Compared to the original credit limit, the available credit is most likely:

Answer: Substantially larger due to the line of credit growth feature

The unused HECM line of credit grows annually at the loan's interest rate plus MIP rate, so 10 years of non-use would result in substantially more available credit than was originally established.

A 'modified term' payment plan combines which two disbursement components?

Answer: Line of credit and term payments

A modified term plan combines a line of credit set-aside with monthly term payments for a borrower-specified period, providing both a reserve and fixed-period monthly income.