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Reverse annuity mortgage Print E-mail
Reverse annuity mortgage or RAM as it is also called is a process in which the property owner can use his/her home equity to get monthly payments against the property from a reverse mortgage lender. Thus we see that reverse annuity mortgage is a great way convert the cash flows of the future into the present. The first institution to start reverse annuity mortgage was department of Housing and Urban Development. Their schemes still continue to be one of the most popular. The property is first appraised and a percentage of the value is given out as loan to the home owner in the form of annuity payments. One must appreciate the fundamental difference between reverse annuity mortgage and home equity loan. In the latter, a loan is extended against home equity but the borrower has to pay at least the interest component of the loan outstanding every month. However in reverse annuity mortgage, the borrower does not need to pay anything till the time the loan is to be paid off in full. There are various institutions which are offering reverse annuity mortgage services. Those offered by the state and the federal governments are often the cheapest of the options. Federally insured home equity conversion mortgage is another option which can be explored. These are usually cheaper than private players but more expensive than state or federal government options. The private players are usually the most expensive. The payments from reverse annuity mortgage can be used in anyway as deemed fit by the borrower. It can be put in an interest giving instrument or can be spent on home care or other expenditure. One important thing about reverse annuity mortgage is that the amount of cash which is actually got by the borrower is dependent on how long the person lives. Thus, the longer one lives, the lender keeps paying the annuity amount to the borrower and it does not depend on the property. The income from reverse mortgage payments is tax free. However, reverse annuity mortgage payments can affect certain supplementary benefits that the borrower may be getting. For example, if the income of the borrower after adding the annuity payments exceeds the minimum requirements of programs like Medicaid etc., then these benefits will be withdrawn. Also, the terms and conditions of reverse annuity payment can be quite complicated, so it is better to understand them properly before accepting the annuity option. Reverse annuity mortgages also involve charges like originating cost and closing cost. Hence you should be aware of these additional costs involved as well. It is best to consult a counselor before going for a reverse mortgage arrangement.


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