In a reverse annuity mortgage, which statement is true?

In a reverse annuity mortgage, the structure of the loan allows homeowners, typically older adults, to convert a portion of their home equity into cash without having to make monthly mortgage payments. Instead, the lender pays the homeowner a lump sum or a series of payments.

As the homeowner receives money from the lender, the outstanding balance of the mortgage consists primarily of the principal and any accrued interest. Since the homeowner does not make payments toward the loan while living in the home, the amount owed to the lender grows over time, as interest accrues on the outstanding balance. Thus, with each passing year, the total amount of interest charged increases, contributing to a higher overall debt.

Therefore, the statement that the annual interest expense increases over the life of the loan is accurate, as it reflects the compounding nature of the interest on the mortgage balance.

The other statements do not hold true in the context of a reverse annuity mortgage, highlighting the unique characteristics of this type of financial instrument.