A reverse mortgage is basically refinancing a home (for seniors) in order to get the equity out today with no monthly payments until the full loan is due when the homeowner passes away or moves. It provides tax free money to the senior homeowner in exchange for a hefty interest rate loan that compounds semi-annually over time.
The bright side is that the home owner will not need to make payments until the loan is due in full. The problem is that by the time the loan is due when the home owner passes away or moves, there is typically very little equity remaining in the home. This means nothing will be left behind to the next generation.
The interest rate charged on reverse mortgages are higher than regular mortgages. In addition to that, since no payments are made, they interest due grows very quickly (compounded semi-annually). As of today, CHIP charges up to 8.95% on their reverse mortgages.
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