Question

Is Reverse-annuity mortgage (RAM) a good deal?

Answer 1

• Reverse Annuity Mortgage ( RAM ) is not a good deal., due to following reasons :

• Reverse mortgages are loans provided to persons who has age of 62 , and who like to borrow against the value of their homes .  
• It would be exorbitantly expensive , which requires additional fees and premium.
• Instead of interest compounding on lower number in each month , like a regular mortgage , this reverse mortgage is compounding on a higher number because of the additional premiums .
• At the time of death , your estate will have needed to pay off remaining balances . Also if you move out of that house , you will get a year to close the loan .

Detailed view of Reverse Annuity Mortgages :

• RAM is a senior citizens aimed loan who have paid off their houses , but can not afford to stay there or need additional amount for home repairing , long term care , medical or for anything .

• This will allow the owner of the house to convert in to cash some of equity , they have built up in home .

• And tax free loan proceeds are there and also no minimum income needs for most of the private RAMs .

• Loan payments are usually paid to borrowers monthly , instead of in one lump sum , also repay when that borrower sells the house , moves out or dies .

• CHFR , the connecticut Housingvfinance Authority offering RAMs to homeowners of single family houses or for people age of 70 years old , if , 1. At least one borrower needs long term health care , 2. Income of household not exceed dollar 81,000 per year .

• Housing and Urban development dept. ( HUD ) And other private lendors offering RAMs to qualifying homeowners .

Merits of RAMs :

• 1. We can eliminate traditional mortgage payments and can access your home equity , while still living in that home .
• 2. It increases spending power along with financial security during retirement .
• 3. Its flexible product can use in various ways for types of borrowers .
• 4. It helps you to live in your home as much you want with no monthly mortgage payments and help to improve your urgent finance .
• 5.There is only low risk . Because you are not needed to pay  on loan until you permanently leave that home .eventhough needs to pay taxes and insurance on home .
• 6. There is no downside : in RAM usage , you not owe more than your home ' s value at the time loan is repaid , even if RAM lendors have paid you more than value of that home .this is one of the merit if you securing RAMs and then prices of home declines .
• 7. Its tax free whether receive in lump sum or fixed money
• 8.there is no restrictions for , how to use RAMs funds . Its your choice .
• 9. There involves flexible payment options .depending on types of loan you taken , you can receive RAM loan amount in form of annuity , credit , lumpsum or its combination .
• 10. By taking RAM , you can live in your home with retaining home ownership.
• 11.using RAM , there is a guaranteed place to live for you . You can live there as you want .
• 12. Its federally insured : HECM is the Home Equity Conversion Mortgage , is widely available RAM , which is managed by HUD ( as said earlier ) . And it is federally insured .
• 13. You can preserve wealth and can increase your home value . If taking a loan as home equity line of credit , this RAM line of credit grows annuity.it locks current home value and RAM line of credit over time is larger than future real estate value , if market falls .

• Demerits of RAMs :

• 1. It has huge fees regarding upfront fees , insurance and other original fees . But the fees can be financed by RAM itself , so there is option to avoid out of pocket expenses during its closing .
  
• 2. It accumulates interest : there are no monthly payment on RAMs. Every month the interest will owe accumulates . Eventhough , the owing amount of loan will never exceed the home value when the loan become due .
• 3. There is not enough cash can be tapped : if you have a lot of home equity , you would frustrated that RAM is only enable you to use some of it .
• 4. More complicated : with a traditional mortgage , you borrow money upfront and pay the loan down over time . But in RAM , its opposite .you accumulates the loan overtime and pay all back when you leave from there .
  

• Thus RAM does not repaid within quantified term as traditional mortgages .RAM is repaid when borrower dies , sells their home or moved out from there for 12 months .

• RAM only possible to take to 62 years old senior citizens .l so the normal term of RAM is the length of the time a borrower remains living there in home after it taken out as RAMs .

Due to above mentioned disadvantages of reverse annuity mortgages , i say it is not a good deal .

But it has also some advantages.

Eventhough its not a good deal . Its more difficult one .but , does not mean that they are bad deal for all homeowners for every situation .

If RAM is expensive , and not good deal , it may still be the best for your circumstances .

Hope you understand this answer

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