Question

An elderly couple owns a $300,000 home that is free and clear of mortgage debt. A...

An elderly couple owns a $300,000 home that is free and clear of mortgage debt. A reverse annuity mortgage (RAM) lender has agreed to a $250,000 RAM. The loan term is 12 years, the contract is 8.0% interest, and payments will be made at the end of each month. This will result in the lender paying the elderly couple $_______/month.

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Answer #1

We can use the present value of annuity formula to find the monthly payment received by the elderly couple.


Where,
PVA = Present value of annuity
A = Annuity or payment received.
i = Interest rate in decimal form
a = Number of payments in a year
n = Number of years

Substituting the values in the formula, we get:

...This will result in the lender paying the elderly couple $2,706.13 /-month.

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