How A Reverse Annuity Mortgage Benefits Retirement

A reverse annuity mortgage enables borrowers over the age of 62 to borrow against the equity in their home. Through a reverse annuity mortgage, elderly borrowers can receive monthly cash payments as supplemental income to enhance the quality of retirement life.

A conventional mortgage requires the borrower to make interest and principal payments. As time goes on, the borrower builds equity in his or her home and the remaining principal loan balance decreases. A reverse annuity mortgage is an innovative twist on the conventional mortgage. A reverse annuity mortgage flips the above process to enable the borrower to actually receive a cash money sum based on their home's equity. The reverse annuity mortgage process, while great in immediacy, actually makes the borrower's home equity decline while increasing the balance of the loan. 

The borrower still owns their home when they enter a reverse annuity mortgage. Although the borrower's loan steadily increases during the term of the reverse annuity mortgage, there is a cap that permits the reverse annuity mortgage to grow larger than the value of the home. A non-recourse limit is an aspect of the reverse annuity mortgage that protects the borrowers. The non-recourse limit strictly prohibits the lender from seeking payment from any other sources or assets than the value of the borrower's house.

Although a reverse annuity mortgage works with home equity, a reverse annuity mortgage is not directly related to a home equity loan. For example, a home equity loan is a way for a borrower to get money and build home equity. In order to build equity with this type of home loan, the borrower has to either pay the amount drawn from the line of equity or the loan's monthly interest. One of the great things about a reverse annuity mortgage is that, unlike with a home equity loan, a borrower doesn't pay a cent until the loan is paid in full.   

Because a reverse annuity mortgage is such a valued opportunity, a reverse annuity mortgage is not available for all homeowners. There are a few qualifications for a reverse annuity mortgage. To obtain a reverse annuity mortgage, the borrower must be over 62 years of age and must own their home. Additionally, the owner's home must be free of any other liens or mortgages, such as a second mortgage or a home equity loan. If you qualify for a reverse annuity mortgage, you should consider the types of reverse annuity loans.

A single purpose reverse annuity mortgage is a reverse annuity mortgage provided by the state government. Although the state government is typically strict about dispersing funds, a state-issued mortgage is usually very affordable. Other options include a home equity conversion mortgage, issued by the federal government, and a proprietary reverse annuity mortgage offered by private sectors. If you are interested in a reverse annuity mortgage, you should visit a financial adviser to discuss what mortgage is right for you.