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Financial Institutions have developed a new product called a reverse mortgage.
They will loan you up to 40% of the equity in your mortgage-free home. The benefits they offer is that you do not have to repay this mortgage until you sell or move out of the home. This sounds great!
However, the mortgage rate is higher than a conventional mortgage and the interest is compounded semi-annually, just like a regular mortgage.
No payments! How wonderful!
If you have no heirs and no charity you wish to leave money to, then it might be a good financial move for you.
However, if you wish to keep equity in your home, then you could be in for a very unpleasant surprise!
One elderly couple took out a reverse mortgage on their home to purchase a new car. The initial amount was for $35,000. After interest at the rate of 9% had compounded over 5 years, they owed $50,000 and no way of paying it unless they sold their home.
The other option was to continue in the home until they had to move into a care home or passed away, at which point, the bank would have owned the equity in that home.
Do your homework before committing to a product like this! It sounds tempting - traveling, helping your grandchildren, etc., but the cost will be high!
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