FLU think of it like you are selling your home to somebody and then work out the following deal.
1 – You get to still occupy the home.
2 – They pay you an agreed to monthly payment based on a negotiated sales price of the home at a given interest rate.
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That is the most simplistic model. People who did a reverse mortgage in say 2004-2006 are laughing all the way to the bank.
I will be interested to hear some experts kick in some comments. However the play is that the homeowner will keel over before the entire payout is made. I would presume that the beneficiaries still get paid the remaining funds (100% of the balance? don’t know) and the presumption is also that housing will have appreciated so that the property is more valuable. I would also presume once you do the reverse mortgage you cannot back out and/or sell the home without full payback plus some penalty and accrued interest.
Benefits? Well say you are an elderly person/couple on a fixed income and love your home and don’t want to leave it? Well do a reverse mtg and perhaps then you get to stay plus you get some income.
I am sure that if I look into them in depth they are probably pretty sketchy. Surely they may be possible vehicles in certain situations for some people. I don’t think anyone qualifies for them either, you probably need to be a a bit older and there may even be a certain equity ratio you need to have to get one. Also I would presume owner occupancy is a must.
