Business Glossary

mortgage instrument that allows an elderly person to live off the equity in a fully paid-for house. Such a homeowner would enter into a reverse annuity mortgage agreement with a financial institution such as a bank, which would guarantee a lifelong fixed monthly income in return for gradually giving up ownership of the house. The longer the payments continue, the less equity the elderly owner would retain. At the owner's death the bank gains title to the real estate, which it can sell to offset outstanding claims. The law also permits such arrangements between relatives, so that, forinstance, a son or daughter might enter into a reverse annuity mortgage transaction with his or her retiring parents, thus providing the parents with cash to invest in income-yielding securities and the son or daughter with the depreciation and other tax benefits of real estate ownership.

mortgage instrument that allows an elderly person to live off the equity in a fully-paid-for house. Such a homeowner would enter into a reverse annuity mortgage agreement with a financial institution such as a bank, which would guarantee a lifelong fixed monthly income or a large cash advance in return for gradually giving up ownership of the house. The longer the payments continue, the less equity the elderly owner would retain.