Reverse Annuity Mortgages

If you’re house-rich but cash-poor in retirement, you may have been tempted by reverse mortgage ads promising to turn home equity into income. A reverse annuity mortgage is a specialized loan that converts a lump sum of your home’s value into guaranteed monthly payments, similar to a mortgage-backed annuity. 

Reverse annuity mortgages aren’t as popular as they were a few decades ago, but two state agencies—Connecticut and Montana—still offer them. Read on to see whether you qualify for one or if a different type of reverse mortgage might work instead.

What is a reverse annuity mortgage?

A reverse annuity mortgage (RAM) is a type of reverse mortgage that provides you with regular monthly payments, similar to an annuity. With a RAM, the lender takes a lump sum from your home equity and uses it to purchase an annuity that then pays out a monthly income stream to you.

The major difference between a RAM and other types of reverse mortgages is how the loan proceeds are distributed to you. Standard reverse mortgages, such as home equity conversion mortgages (HECM), allow you to receive your loan in a lump sum, line of credit, or through regular payments. 

But with a RAM, the entire loan amount is used upfront to fund an annuity that generates fixed monthly payments for you. In essence, a RAM takes your home equity and converts it into guaranteed monthly annuity payments, whereas other reverse mortgages provide more flexible payout options.

Here’s a comparison table of the main types of reverse mortgages:

Type	What it is	Use for any purpose?
HECM (FHA-insured)	Offered by private lenders  Paid in lump sum, line of credit, or term/tenure payments	✅
Single-purpose reverse mortgage	From state & local government agencies and nonprofits Often paid in a lump sum	❌ (Must be for a specific reason, e.g., home repairs or property taxes)
Proprietary or jumbo reverse mortgage	From private lenders Paid in lump sum, line of credit, or term/tenure payments	✅
Reverse annuity mortgage	State government agencies (CT & MT only) & some private lenders Paid in monthly payments	❌ (For a stream of fixed monthly income)

Do you need a reverse annuity mortgage, or will a standard HECM work too? 

A standard HECM reverse mortgage lets you take your loan proceeds in different ways—you don’t need to accept it all upfront as a lump sum. 

One option is to get tenure or term payments, which provide the same steady stream of pension-like income a reverse annuity mortgage would offer. 

• Tenure monthly payments are fixed for a set number of years.
• Term monthly payments are fixed for life, up to the amount stated in your mortgage.

So unless you’re in Connecticut or Montana and qualify for a state-run RAM program, you may be better off getting a regular reverse mortgage (such as a HECM) and choosing monthly payments as your payout option. 

You don’t necessarily need to track down a specialized “reverse annuity mortgage” product.

How does a reverse annuity mortgage work?

With a reverse annuity mortgage, the lender provides you a lump sum loan using your home’s equity as collateral. However, instead of paying the full lump sum, the lender uses it to purchase an annuity for you.

The annuity then provides you with fixed monthly payments over a set term or for your life, depending on the annuity type purchased. You continue living in your home without needing to make loan payments.

When you move out or pass away, the loan balance (the original lump sum plus interest) must be repaid to the lender, typically by selling your home. Any remaining equity after repaying the debt goes to you or your estate.

Tip

⚠️The Federal Trade Commission warns to be cautious of lenders that pressure you into investing your reverse mortgage proceeds into other financial products, such as annuities. You do not need to invest your money to get a reverse mortgage. 

Other reverse mortgage types, including HECMs, give you more ways to access your home equity—either upfront as a lump sum, as a line of credit, through term or tenure payments, or a combination. 

But with RAMs, the only payout option is to take your equity as an annuity income stream. You can’t access the remaining equity for other purposes. 

How do you get a reverse annuity mortgage?

Getting a reverse annuity mortgage (RAM) is more difficult than a standard reverse mortgage because RAMs have limited availability. Here are the ways to get a RAM:

Check with your state housing finance agency 

Two states—Connecticut and Montana—offer RAM programs specifically for low-to-moderate-income elderly homeowners. The eligibility requirements may include:

• Being 68 to 70 years old or above
• Owning a mortgage-free single-family home
• Meeting income limits based on household size

For example, the Connecticut Housing Finance Authority’s RAM program is for people 70 years of age and older who need help with long-term care expenses, and Montana’s RAM program is for people 68 years of age and older within certain income brackets.

Check with local banks and mortgage lenders 

Some regional banks and mortgage companies offer proprietary reverse mortgage products you could set up to mirror the annuity payout structure of a reverse annuity mortgage. Or you could choose a standard HECM reverse mortgage with tenure or term payout options instead. 

Ask a reverse mortgage counselor 

For most reverse mortgages, you’re required to complete counseling with a HUD-approved agency before you can apply for a loan. These reverse mortgage counselors can advise whether any RAM options exist based on your location and situation.

Where do you get a reverse annuity mortgage?

RAMs are not as widely available as standard reverse mortgages. You can get them through two state housing finance agencies. The Connecticut Housing Finance Authority and Montana Board of Housing offer RAM programs for low-to-moderate-income elderly homeowners.

Unlike some RAM programs through private lenders, state-run RAM programs are not predatory in nature. They’re designed to help eligible homeowners get the funds they need to remain in their homes and cover their everyday living expenses. 

Connecticut RAM program

The Connecticut Housing Finance Authority (CHFA) offers a Reverse Annuity Mortgage program for low-to-moderate-income homeowners aged 70 and above with long-term illnesses or disabilities. 

With the CHFA RAM program, you can borrow against your home’s equity and receive tax-free monthly payments for up to six years to cover healthcare, home care, prescription drugs, daily meals, yard maintenance, medical expenses, and long-term care insurance premiums.

To be eligible, you must own a single-family home or condo in Connecticut with no outstanding mortgage. Your household income needs to fall within CHFA’s limits based on your county, and you or your spouse must have long-term care needs. 

If approved, you can borrow up to 70% of your home’s appraised value, with the potential to increase monthly payments by 3% each year. There are no closing costs. Reverse mortgage counseling is required. 

Montana RAM program

Montana’s RAM program provides reverse mortgage loans for senior homeowners aged 68 and older. The program has income limits. For 2024, borrowers cannot exceed: 

• $30,120 for a one-person household
• $40,880 for two persons
• $51,640 for three or more persons

To qualify, you must own and occupy a mortgage-free single-family home in Montana. Mobile and manufactured homes are ineligible. You must also complete mortgage counseling. 

Loan amounts range from $15,000 to $150,000 based on 80% of the home’s appraised value. If approved, you’ll receive the loan proceeds in monthly payments over a 10-year term. 

You can also get an upfront lump sum advance of up to $10,000 for paying off liens, making required repairs, or covering closing costs. Lump sums reduce the monthly payment amount.

Pros and cons of a reverse annuity mortgage

If you’re considering a reverse annuity mortgage, keep these benefits and drawbacks in mind:

Pros

• Guaranteed monthly income stream

  With a RAM, you get fixed monthly payments, similar to an annuity. This provides you with a reliable source of income that can help cover living expenses in retirement.

• Potentially lower costs

  RAMs through state agencies often have lower interest rates and fewer fees compared to private lenders. Connecticut’s program has no out-of-pocket closing costs.

Cons

• Limited payout options

  Unlike HECMs, which let you take a lump sum, line of credit, or periodic withdrawals, a RAM locks up all your home equity into an annuity income stream. You can’t access remaining equity for other purposes.

• Limited availability

  Few (if any) lenders offer RAMs outside of Connecticut and Montana, and these two states have income limits, higher age limits, and other strict requirements. Government-insured HECMs are more widely available, and the main two requirements are being age 62 or older and living in the home as your primary residence.

• May affect government benefits

  A government-run RAM could make you ineligible for certain government assistance programs with income or asset limits, including Medicaid, SNAP (food stamps), and Supplemental Security Income. But it shouldn’t influence Social Security, Medicare, energy assistance, or property tax relief benefits.