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Introduction to Reverse Annuity Mortgage (RAM)
Most of the senior citizens in the country have a lot of financial challenges. Though they may have little or no mortgage on their homes, they live on a fixed income with high medical expenses.
If you are a retired homeowner with very little fixed income to cover all your medical and other expenses, a Reverse Annuity Mortgage could be the best option for you. In this post, we will learn about reverse annuity mortgages in detail.
What Is A Reverse Annuity Mortgage?
RAM is a type of home mortgage where elderly individuals who own their property are allowed to take a long-term loan keeping their home’s equity as collateral which is paid to the lender once the property is sold.
It is a program for senior citizens who have fixed low incomes to cover costs for their long-term illness, disabilities, housing, and health care. Not all lenders provide RAMs, those who do may have different qualification requirements.
The one that is discussed in this post is the one that is offered by Connecticut Housing Finance Authority (CHFA).
According to them, borrowers applying for this type of mortgage can borrow against the value of the property and CHFA will provide tax-free monthly payments for up to 6 years.
What Are The Advantages Of Reverse Annuity Mortgage?
The money that you receive through the RAMs is in form of direct deposits in your account and is completely tax-free.
You can borrow up to seventy percent of the appraised value of the property till the state conforming loan limit which in many states is $647,200.
This money could be sued to cover the cost of both in-home and out-of-home care. You as a borrower don’t have to pay any closing costs out of your pocket.
And you get a certain percentage increase (Usually two to three percent) in your monthly payment that you would receive from the lender.
There is also a provision of getting a lump sum at the time of closing for the eligible borrowers of five thousand dollars to pay off any outstanding taxes, small liens, medical expenses, outstanding bills, or minor home improvements.
A lump sum of twenty-five thousand dollars is also granted to eligible borrowers to cover medical or supportive services.
What Are The Eligibility Parameters For Reverse Annuity Mortgage?
The eligibility depends on a lender to lender or state to state for the reverse mortgage. CHFA requires the borrower’s age to be seventy years or more and should own a single-family home or a condominium.
If you live with your spouse, one of you needs to be over seventy years of age and must require long-term health care or support services.
The household income should be below the state-wide income limits specified by the authority.
There should not be any mortgage or lien on the property at the time of closing. And you should obtain a certificate from a HUD-approved housing counseling agency for completion of reverse mortgage counseling.
Conclusion
The reverse annuity mortgage is a provision for elderly individuals who requires some extra income to cover their overhead expenses. RAM can be repaid to the lender at any time without any additional cost.
However, full repayment is made to the lender when the property is sold or the ownership of the property is transferred to someone else other than the borrower.
A reverse annuity mortgage does not affect any of your rights under Medicare, Social Security, Property Tax Relief, and Energy Assistance.
It is suggested to check with your authorized representative to understand and know your rights with regard to RAMs.
