How does a reverse annuity mortgage function?

A reverse annuity mortgage is specifically designed to allow homeowners, typically retirees, to convert a portion of their home equity into cash. Instead of making monthly mortgage payments, which is characteristic of traditional mortgages, the homeowner receives regular payments from the lender based on the equity they have built up in their property. This process enables the homeowner to access funds without the immediate obligation to repay them, thus improving cash flow during retirement.

The essence of the reverse annuity mortgage lies in empowering homeowners to leverage the value of their property while still residing in it. This approach not only provides immediate financial relief or income but also means that the loan balance increases over time as the homeowner receives payments, rather than decreasing as in standard mortgages. The homeowner can continue to live in their home as long as they adhere to the terms of the agreement, making this a unique financial product aimed at providing financial security for older adults.