Remember this: While the FHA insures most loans, the people you talk to are the investors who own the loan. FHA has very specific requirements for servicers of these hybrids and they, the FHA, your lender and the investors who own the loan are not your friends. You are on one side of the table, they are all together on the other.
The bet made is that between the increasing value of residential real estate, your age and the money they advance you, they will make a reasonable return on their investment. Higher interest rates on reverse mortgages help this. Seniors have to, on average, die within the projected mortality tables that the programs are based on. Everyone has a part.
This mortgage is more a social/political product than a financial one. The government is faced with seniors with thinning assets and at the same time has to deal with Social Security funding issues. (Note: Social Security is not an entitlement program; we and our employers have put money into that system every working year of our lives). Seniors without money for food and medication are not good 5 o’clock news fodder, so tapping equity with a government agency taking the risk (at taxpayers’ expense when it doesn’t work) is a social/political solution.
Equity is being eroded monthly by every payment made to you plus the growing monthly interest component on that unpaid balance. Think the reverse of compound interest on your CD. It won’t take long to develop a very large hole in your equity.
Key to remember: Make sure this is your final dwelling and it is suitable for your later years. If you try to downsize later in life, after living with such a mortgage, you may find you have too little equity left for that more-suitable residence.
Gaylord Lion
Durango
