Is this really mortgage magic?

There’s a reverse mortgage now that senior’s can use to buy a home and owe NO mortgage. Seniors pay a large initial down payment but no future mortgage payment. What’s the catch? See the article in the link above for a great discussion and the downside.

With reverse mortgages, the payments accrue against the value of the house. Thus, the longer you live in the home, the more likely it is that the amount “owed” on the reverse mortgage exceeds the purchase price (or possibly even the current price) eliminating equity the owners established when they bought it.

As with anything, purchasing an asset is only 1/2 of the transaction. People forget to consider how does the asset’s sale come into the play later? People tend to think of rosy scenarios when they think of selling many years later. How about the not-so-rosy possibilities?

More on Reverse Mortgages.

, , , , ,

3 Responses to Is this really mortgage magic?

  1. Larry Frank, Sr. August 10, 2012 at 9:42 am #

    Here is a great article on more down sides that should be considered BEFORE taking out a reverse mortgage. Learn from those who have gone before you and are now experiencing trouble nobody told them about.

  2. Larry Frank, Sr. October 15, 2012 at 8:34 am #

    Yet another article on the dark side of how something widely advertised on TV becomes a real problem because suitability of the product is ignored by misaligned incentives skewed towards the salesperson … Reverse Mortgages work when properly applied: with sufficient equity in the home, sufficient capability to continue to maintain the property and pay the property taxes and insurances, for proper purposes (e.g., not to spend on cruises), and typically for older retirees (they get a larger payout), and many other considerations.

  3. Larry Frank, Sr. December 25, 2012 at 10:37 am #

    A letter to the editor in Money Magazine (Jan/Feb 2013, page 13) brings up another pitfall for reverse mortgages. The letter writer writes “After the owner of a house with a reverse mortgage dies, if heirs don’t sell the house within a year (or pay off the loan with outside cash), the mortgage company can start the foreclosure process. My late mother had a reverse mortgage on her house, and we sold it just in time.”

Leave a Reply