Question

At age 70, Fiona lives alone, owns a house valued at $350,000, and has paid off the mortgage completely. Fiona has no other assets to live on. She can choose a reverse mortgage that gives her payments of $32,000 a year for 10 years or one that pays her $20,000 a year for as long as she lives in the house. Fiona opts for the $32,000-a-year reverse mortgage. Did Fiona do the right thing, considering that women of her age live 14 more years on average?

Yes, because she can live rent-free for 10 years and receives a larger income for those years.

Yes, because she gets value out of the house in a form she can use.

No, because she may be unable to live in the house that long or if she lives longer, she will be broke.

No, because reverse mortgages only make sense for people under 50 years old.

Answer 1

My first instinct when I read this problem is to calculate the total money amount Fiona would expect to make from either choice.
In the 32k choice, she gets 320k total (32 each year for 10 years)
In the 20k choice, assuming Fiona expects to live 14 more years, she gets 280k total (20 each year over 14 years)
For this alone, I'd say Fiona made the right choice.

Answer 2

Now, both the first and second option agree that Fiona made the right choice, but the second answer option applies to both of the reverse mortgages. The first answer option does give a reason for the 32k choice being better, in that she "receives are larger income" over those 10 years.

Answer 3

A. Got it. Thanks for explaining it to me. c:

Answer 4

Of course, I'm happy I can help