Reverse Equity Mortgage
Reverse Mortgages are rising-debt loans. Pro--- income is without pay back until the house is sold or you die. Con--- interest accrues from the time of the loan. Interest is added to the balance beginning month one and each succeeding month because it is not paid on a current basis. Therefore, the total amount of interest you owe increases significantly with time as the interest compounds.
American Association of Retired Persons (AARP) says, "Even though the minimum age to get a reverse mortgage is 62, the average age is 76. Life expectancy limits the amount you can borrow." A person aged 70 with $100,000 equity in a home would receive $272 per month through an FHA-insured RM (at 10% interest), but a person aged 80 could receive $453.
Origination fees and closing costs. The three plans (FHA-insured, lender-insured, and uninsured) charge fees. Insured plans also charge insurance premiums, and some impose mortgage servicing charges. Fees may be financed but these costs will be then added to your loan amount with compound interest.
Other Considerations. Reverse Mortgages use up some or all of the equity in your home, leaving fewer assets for you and your heirs in the future. Interest on RMs is not deductible for income tax purposes until you pay off all or part of your total RM debt. Because you retain title to your home with an RM, you also remain responsible for taxes, repairs, and maintenance.
Your smartest move is always "Get out of debt... Stay out of debt."
Source: Associated Press
