A couple in their 70s with no liens on their home would like some extra income, but don't want to make monthly loan payments. What kind of loan might a lender offer them?

• A. A reverse equity loan, since they are over 62 and have sufficient equity in their home
• B. A fixed-rate conventional loan
• C. A home improvement loan with monthly payments
• D. A scalable line of credit

Answer: (A)

The main idea is a loan designed for seniors that turns home equity into cash without requiring monthly loan payments. A reverse mortgage lets homeowners who are 62 or older access a portion of their home’s equity while continuing to live in the home. Instead of making monthly payments, the loan balance grows as interest and fees accrue, and repayment isn’t required until the borrowers permanently move out, sell the home, or pass away. Because many reverse mortgages are non-recourse and FHA-insured (in the common HECM program), heirs aren’t on the hook for more than the home’s value at sale.

In this scenario, a couple in their 70s with sufficient equity who wants extra income without monthly payments fits this product best. Conventional fixed-rate loans and home improvement loans require regular payments, and a scalable line of credit would still involve ongoing payments and interest.