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Which payment method does NOT typically exist for a reverse mortgage?
monthly payments
lump sum payments
credit line payments
interest-only payments
The correct answer is: monthly payments
In a reverse mortgage, borrowers typically receive funds in a way that does not require them to make monthly payments to the lender, which is a defining feature of this financial product. Instead, reverse mortgages allow homeowners, usually seniors, to convert a portion of their home equity into cash while continuing to live in the home. They can receive the proceeds through various methods, most commonly as a lump sum, credit line, or a combination of these. Monthly payments do not fit into the structure of a reverse mortgage because they imply a standard repayment plan where the borrower is making payments toward reducing a loan balance. In reverse mortgages, the loan balance increases over time as interest accrues, and the homeowner is not required to make monthly payments as long as they live in the home. Instead, the loan is paid back when the homeowner sells the house, moves out, or passes away. Understanding the various payment structures available in reverse mortgages is crucial for potential borrowers, as choosing the right method can significantly affect their financial situation and the legacy they leave regarding the family home.