In a Fixed-Term, Level-Payment Reverse Mortgage, Sometimes Called a Reverse

question 7

Multiple Choice

In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM.

• A) $7,157.35
• B) $7,586.80
• C) $12,817.73
• D) $13,586.80

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Definitions:

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