Reverse Mortgage Ads... piss me off

Scataphagos

Scataphagos

Constantly pummeled via the TV airwaves... anything so heavily advertised likely to not be in the consumer's best interest.

I once looked into them. Had (1) well above market interest rates, and (2) exorbitant up-front fees. IOW... they ain't "all gravy" as advertised.

If you're considering a reverse mortgage, study the financials before you sign up.

(I'm a CFP, former adjunct faculty member of the College For Financial Planning, and former fee-only financial planner... for whatever that's worth.)
 
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I've seen those commercials but never looked under the hood of a reverse mortgage to understand it completely. Can you briefly describe it based on your research for the benefit of myself and the community? Thanks!
 
Sure.

The Reverse Mortgage company gives you a monthly amount of income using the equity in your home as collateral for the loan. Principal and accrued interest on your monthly payments are deferred until the last "financially obligated resident" of the home leaves/dies... the loan then "settles up" before the property can be sold. IOW, you're just "borrowing your own money" (home equity) while not having to make monthly payments on the loan.... good for "cash flow", but perhaps not so good for you financially overall. (There may be a limit as to how much one can borrow in this fashion... another aspect to be investigated before signing up.)

It's actually not a bad concept for older folks... except for the costs being excessively in favor of the mortgagee.... which is why they are so heavily promoted.

I didn't investigate LOTS of examples... but I did see some charging 6+% interest (that's virtually usurious in today's low interest environment) AND... AND... up to 20% of the loan's max amount in an up-front fee. THAT'S ABSURD! I doubt they're all that bad, but some are.... so every prospect for such a product should inspect fully and shop around before signing up.

(Clients used to pay me consulting fees to explain things like this before they made decisions they'd later regret.)


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Baron said:
Interesting. Would a home equity loan still work out to be a better option financially?
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Could very well be better. I remember recently seeing HELOCs @ 1.5% interest rates. Upfront fees on such loans likely low, too.

The big difference between HELOC (home equity loans, too) would be the requirement to make current monthly payments to not be considered in "default". With the reverse mortgage, no payments are due until the loan "settles up"... all principal and interest accumulations are deferred... but there appears to be a steep price for that convenience.... + the up-front fees, of course.
 
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