An annuity mortgage is not much different from a standard annuity. With a regular annuity, you contribute funds from your salary into an interest-bearing account and use the annuity as a source of income upon retirement. An annuity mortgage is different in that the contribution is usually in one or several large lump payments.
An annuity mortgage is a type of reverse mortgage. With a reverse mortgage, seniors ages 62 and older can access the equity in their homes without selling them or taking out home equity loans. A lender agrees to fund a large lump sum or monthly stipend checks to a senior with the agreement that when the borrower either sells the property or dies, the lender collects on the debt.
In a reverse mortgage agreement, customers usually have two options: lump sum payment or monthly payments. In an annuity mortgage, customers take a large lump payment and invest it into an annuity. In this way, seniors have control over their money. They choose how much and when they will receive monthly payments.
An annuity mortgage offers one distinct benefit that other reverse mortgages lack: freedom to move. With a well-invested annuity, seniors need not rely on staying put in order to continue receiving monthly stipend checks from a lender. Instead, they can use the proceeds of the annuity to move about, travel, and even sell their homes.
While an annuity mortgage gives borrowers more flexibility, it can also spell problems. Borrowers who struggle with fiscal responsibility may advance themselves too much from their annuity causing future problems. An annuity also does not give the most return on interest and borrowers may be tempted to remove their funds and invest in riskier stocks and bonds.
While the vast majority of reverse and annuity mortgage lenders are qualified and ethical, a small portion of the market belongs to scammers and loan sharks. These lenders take advantage of vulnerable and desperate seniors. Consult with a trusted adviser--a friend, relative or attorney--before making any commitment to an annuity mortgage.