Reverse mortgage vs annuity

A reverse mortgage is a loan against home equity that pays the homeowner; an annuity is an insurance contract that pays an income stream in exchange for a premium — the "reverse annuity mortgage" that once combined the two is a largely defunct product, not a HECM (CFPB, Reverse Mortgages).

Three different things travel under similar names, and the confusion is worth clearing up first. A reverse mortgage is a loan against home equity. An annuity is an insurance contract that pays an income stream in exchange for a premium. A "reverse annuity mortgage," or RAM, was a separate older product that combined the two, and it is largely defunct today. This page compares a HECM reverse mortgage with an annuity, and explains where the RAM term fits.

Last reviewed 2026-05-22

What is a "reverse annuity mortgage"?

A reverse annuity mortgage was a product, mostly offered through state housing programs decades ago, that took out a loan against the home and used the proceeds to buy an annuity, which then paid the homeowner a monthly income. It is not a HECM. The federally insured HECM, created under the National Housing Act and run by HUD, replaced the RAM as the standard reverse mortgage, and the RAM is no longer a meaningful market product. When current material says "reverse annuity mortgage," it is usually either describing a historical product or loosely describing a HECM paid out in the monthly tenure option. The CFPB's reverse mortgage materials treat the HECM as the reverse mortgage a consumer will actually encounter.

How do a reverse mortgage and an annuity compare side by side?

| Dimension | HECM reverse mortgage | Annuity | |---|---|---| | What it is | A loan secured by the home (24 CFR §206) | An insurance contract that pays an income stream (state insurance regulation) | | What you put in | The home as collateral; no premium | A lump-sum premium or a series of premiums paid to the insurer | | What you get | Lump sum, line of credit, or monthly tenure/term payments (24 CFR §206.19) | Periodic payments under the contract, often for life or a fixed term | | Who pays | The lender pays the borrower | The insurer pays the annuitant | | Required monthly payment | None while the borrower occupies the home and stays current on taxes and insurance (24 CFR §206.27) | None; the annuitant has already paid the premium | | Source of the money | Home equity | The premium the buyer paid, plus the insurer's investment return | | Minimum age | 62 for the youngest borrower (24 CFR §206.33) | Set by the insurance contract, not by federal mortgage rules | | Effect on the home | A lien is added; balance grows over time | None; an annuity is unrelated to the home | | Effect on heirs | Balance plus interest and MIP comes out of sale proceeds (HUD ML 2015-10) | Depends on the contract; some annuities pay a death benefit, many do not | | Counseling | HUD-approved counseling required before application (24 CFR §206.41) | No federal counseling requirement; state suitability rules apply |

When does an annuity fit?

An annuity fits a buyer who has a lump sum already, savings, a pension distribution, or a maturing investment, and wants to convert it into a predictable income stream they cannot outlive. It does not touch the home. The cash comes from the premium the buyer pays the insurer, not from borrowing. The trade is liquidity: once the premium is paid, the money is generally locked into the contract, and fees and surrender charges vary widely.

When does a reverse mortgage fit?

A HECM fits a borrower 62 or older who is equity-rich but short on liquid savings, and wants to draw on the home without a monthly payment. The HECM's monthly tenure option pays a fixed amount for as long as the borrower lives in the home, which is the feature that gets it loosely called an "annuity." It is not one: it is a loan payout, the balance grows, and the home secures it.

Should you use a reverse mortgage to buy an annuity?

Using HECM proceeds to buy an annuity is a structure regulators have flagged. It layers the cost of the loan, the upfront and annual MIP, and a compounding balance underneath the cost and surrender terms of the annuity. The HECM already offers a tenure payment directly, with no second product and no second set of fees. A HUD-approved counselor and an independent adviser are the right people to review any proposal that pairs the two.

How do you choose between a reverse mortgage and an annuity?

The row order is not a ranking. The two products solve different problems: an annuity converts existing savings into income, a HECM converts home equity into cash or income. A borrower with savings but no home equity looks at an annuity; a borrower with home equity but little savings looks at a HECM. Run the HECM side in the reverse mortgage calculator.

Related comparisons

Other reverse-mortgage comparisons that bear on the same decision:

• Tenure vs term payments
• Reverse mortgage vs home equity investment
• Reverse mortgage vs sale-leaseback

The full set is on the comparisons hub.

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