In my previous post, I started a discussion about this topic and why it is never a good idea to use money from a reverse loan to purchase an annuity.
In general, an annuity may have high surrender fees and a deferred payment that tie up the borrower’s funds in an account that they would not have immediate access to and is of no benefit to them.
And why would an 80 year old senior buy one? What’s the point? It’s quite likely that they will die before they can ever withdraw any funds from it.
Because of this type of predatory lending, reverse loans developed a nasty image that continues to this day but is no longer true. A reverse mortgage is probably without a doubt the most regulated loan in the lending industry and the safest for the consumer.
At no time is a borrower obligated to buy any insurance products ( especially an annuity) as part of the loan process and within the loan application there are several forms asking the borrower if they intend to use their money from the loan to purchase an annuity and are they working with a retirement advisor?
Once the federal government stepped in and began managing this loan program along with individual state regulations, seniors are now protected from financial manipulation and the potential for financial abuse.
Plus a reverse loan is somewhat “like” an annuity, except the borrower doesn’t have to wait to receive their funds and there are no possible tax consequences.
Why is a HECM/Home Equity Conversion Mortgage better than an annuity?