Reverse Mortgage - Generous Program or Senior Ripoff?

By Stephen Bucaro

You've probably heard of the Federally Insured Reverse Mortgage. It's a program for people 62 or older that lets them turn the equity in their home into cash and still stay in their home as long as they live. Is the reverse mortgage an extremely generous program provided by our government to our senior citizens, or is it a scheme to let the banks get their hands on senior citizens assets?

The important thing to understand is that a Reverse Mortgage IS a Mortgage loan.

With a regular mortgage, you buy a home and, with interest added, you pay more than twice the price of the home. With a reverse mortgage, you buy a home and, with interest, you pay more than twice what it's worth - but since the home belonged to you, you get what ever is left over after the loan fees and interest are taken out, and the bank gets your home.

You can take the money as lump sum, monthly cash advance, credit line, or a combination of the above. The IRS doesn't consider the reverse mortgage money you receive to be taxable income, but it could cause you to lose your eligibility for medicaid and other benefits.

The fees for a reverse mortgage are enormous; paperwork fees ("origination", "closing costs", and "servicing") are about $10,000. Mortgage insurance is another $10,000. And the interest rate is the one-year treasury rate plus a "margin" that Fannie Mae is allowed to add. In other words the interest rate is about twice the one-year treasury rate. Fees vary depending upon your age when you get the reverse mortgage, being highest for those aged 62.

Of course you still get to live in the home, but you bare the expense of property taxes, home-owners insurance, maintenance and repair. If you can't pay these expenses, the bank takes your home. If you move out of the home, you must repay all the cash - plus interest, or the bank takes your home. When you die, your heirs must repay all the cash - plus interest, or the bank takes your home.

Here's some reverse mortgage information provided by the AARP: Reverse Mortgages

Here's an eBook all about reverse mortgage's that you can download for free: Home Made Money

Here's an online reverse mortgage calculator: AARP Reverse Mortgage Calculator

I entered my data into the online reverse mortgage calculator and the result is that I can get a lump sum payment or credit line of $147.209. That's what I get for my $500,000 home. And since my wife is much younger than I am, when I die, she must repay all the cash - plus interest, or the bank takes her home. Generous program or senior ripoff? I'm thinking ripoff.

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