Legal Definitions - RAM

RAM stands for Reverse Annuity Mortgage.

A Reverse Annuity Mortgage (RAM) is a specialized type of loan available to homeowners, typically those aged 62 or older, that allows them to convert a portion of their home equity into cash. Unlike a traditional mortgage where the homeowner makes monthly payments to the lender, with a RAM, the lender makes payments to the homeowner. The homeowner retains ownership of their home and does not have to make monthly mortgage payments. The loan balance grows over time as interest accrues and payments are made to the homeowner. The loan generally becomes due and payable when the last borrower moves out of the home permanently, sells the home, or passes away. At that point, the loan is repaid, usually from the sale of the home.

Here are some examples illustrating how a Reverse Annuity Mortgage might be used:

• Example 1: Supplemental Income for Living Expenses

  Eleanor, a 78-year-old widow, owns her home outright but finds her fixed income barely covers her monthly expenses like utilities, property taxes, and groceries. She wants to remain in her home but needs additional funds to live comfortably.

  How it illustrates RAM: Eleanor could obtain a Reverse Annuity Mortgage. The lender would provide her with regular monthly payments, allowing her to supplement her income without having to sell her home or take on new monthly mortgage payments. She continues to own and live in her home, and the loan balance, which grows over time, will be repaid from the sale of her home after she eventually moves out or passes away.

• Example 2: Home Improvements and Debt Consolidation

  Robert and Maria, both in their early 70s, have significant equity in their home but also have some outstanding credit card debt and need to replace their aging HVAC system. They don't want to take on new monthly payments that would strain their budget or sell their beloved home.

  How it illustrates RAM: A Reverse Annuity Mortgage could provide them with a lump sum of cash. They could use these funds to pay off their credit card debt and finance the necessary home repairs. They would not have to make monthly payments on the RAM, preserving their cash flow, and the loan would only become due when they no longer live in the home, typically repaid from the home's sale.

• Example 3: Establishing an Emergency Fund/Line of Credit

  David, age 68, is generally financially stable but is concerned about potential future medical expenses or other unexpected costs not fully covered by his insurance. He has substantial equity in his home and wants access to funds if needed, without incurring interest until he actually uses them.

  How it illustrates RAM: David could secure a Reverse Annuity Mortgage structured as a line of credit. This would give him access to funds as needed for emergencies without having to sell his home. He would only accrue interest on the amount he actually draws, and he wouldn't have any monthly payments. The loan would be repaid when he eventually leaves the home, providing peace of mind and financial flexibility.