steam_mill

So. since there seems to be alot of O/T threads lately, I though I would add another one. As I continue to ensure a financially stable retirement in 2028, I'm trying to understand reverse mortgages. What is the advantage of a reverse mortgage versus just using a heloc if money is required?

I have a heloc at prime plus 0.3%. So, ~3%. Whereas I look at a reverse mortgage and rates are between 4.5% to 6.25%, never mind fees.

Am I missing something? Or are reverse mortgages another scam?

moab

Doesn't interest on a reverse mortgage accrue so that you don't need to pay during your lifetime, which provides you with more cash flow. When you croak, time to pay the piper.

steam_mill

Yes, that is true. That is still a significant premium. With the heloc, only interest payments are required. Technically, when you croak, and estate is settled, the heloc only needs to be paid back then. Isn't this still more financially advantageous than a reverse mortgage?

Also, my goal in understanding this is to be able to write the details down for what my wife should do in case something happens to me. I have no plans on using either a heloc or reverse mortgage. But, if something happens to me, it may make my wife's retirement easier. She has no interest in finances. I am currently updating my "What to do if I die" document.

Turbodan

Reverse mortgage does not have the same income requirements (stress test) that traditional mortgages require. You only need to cover your property tax with income or pension to qualify. Interest rate is higher (around 5%) and if the person dies or goes to retirement home, there are not penalties for early payout. Banks charge high fees for fixed mortgage prepayments. Variable mortgages have 3 months interest penalty. Do not take mortgage insurance, take life. One reason is, if you die, your wife may want to maintain a mortgage and use the funds, with mortgage insurance if you die they pay off the mortgage.

theiceman

Bottom line .. Reverse Mortgage means you have money but nothing is left to your airs as the bank takes it ..
if you have no next of kin you want to leave something to it doesnt matter.. If you have next of kin who think they are getting the house when you croak , think again.

.2PDK

"heirs"

theiceman

yeah i knew it wasnt right ... thanks

Pags993

Good info here when my parents and I looked into it. They decided against it and went HELOC instead.

https://www.chip.ca/reverse-mortgage...anadian-heirs/

Jeffrey Behr

(1) Reverse mortgages have higher interest rates than conventional mortgages, which becomes a back-end cost of whoever survives you.
(2) The front-end costs and fees can be substantial, which is a front-end cost which you pay up front *.

My recommendation is to RM your home only if you need cash to do the things U want to do now or in a few years...such as buying a new Porsche. Oh ya...when you die and the RM must be paid, normally the house has to be sold to create that cash.. If your wife survives U, where will she live? Do you live in a community-property state?

Maybe U should talk to an attorney specializing in wills and estates; 'RMing' your home is no small matter.

And what's a heloc--same as a home-equity credit line?

* IOW, U borrow $100K and recieve $92K of 'cash'.

.2PDK

CanuckGT4

oh dear, do you have children?

steam_mill

Thanks to all for your responses. In fact a few of you DM'ed me. For our American cousins, HELOC Home Equity Line of Credit

I can't understand where a reverse mortgage actually makes sense. The interest charges on a HELOC are much lower than on a reverse mortgage. Besides making the interest payments on the HELOC, there are no further obligations. When the property is sold, the HELOC would be paid off, same as a reverse mortgage without any of the other overhead besides discharging the HELOC ($250 with a lawyer).

So, I'm not sure the reverse mortgage is really a Scam, but I don't see where as a financial product it would provide a benefit versus a HELOC.

Jeffrey Behr

The advantage of an RM is that NO payments are required during the life of the borrower or until the sale of the home.

Turbodan

this is quite funny.
most of the info stated here is incorrect.
read my post above for truth.
advantage is old person who has all money in equity in home doesn't need to move and can draw equity and doesn't need to make payments. Don't forget home prices are rising in Canada.
btw fee for a reverse mortgage is about $600.

moab

I have one friend whose mom took out a RM. I know becuase I had to provide her with ILA (as a favour). She is a widow and her children don't need to inh-air-it (see what I did there) the house. So a RM makes sense for her since she has no worries about servicing the debt while she is alive and she can spend away. If you are on a a budget, not having to pay interest payments while you are still breathing is a pretty important advantage. When you are worm food, WGAS.