Reverse Mortgages seem to be gaining some attention in the media again…. I thought it might be worth bringing or sharing some thoughts… here’s a recent article.
A Reverse Mortgage will give a lump sum of cash or monthly payments for life or a combination of both… it’s all tax free money…. Ok, that does sound good..
But upon closer inspection, we see that the interest rate is around 2% to 3% higher than what you can borrow money at for similar fixed rate products. 5.90% vs. 3.50%. Remember, you are borrowing money and NOT paying it back.. the interest just accumulates and compounds… there are also appraisal fees, administration fees, legal fees… and if you want to sell your home and pay this off, you face huge penalties that could range from 11 months worth of interest to 4 months of interest….Yikes!
Another alternative would be to borrow a secured line of credit at Prime plus 0.50% with interest only payments…. currently, that rate would be 3.50%….
I remember when these products came out in the mid ’90s.. they were horrible… they have changed and rates are a little better, but my advice is talk with a qualified Mortgage Broker or Financial Planner before making any decision…
My last thoughts… I wouldn’t put my parents into one of these products…..