Reverse It

Some time ago, I wrote an post criticizing reverse mortgages. A reverse mortgage is where a homeowner essentially puts the equity in their home up as collateral for a loan that is repaid when they die or sell the house. It's sold as a way to "tap into the savings in your home". Since my last post, these loans have become even more popular.

Tim Iacono notices a piece in the LA Times and also notices something else:

As with all loans, reverse mortgages have fees and charge interest. For example, a 78-year-old borrower whose home is worth $200,000 might end up with a reverse mortgage of $123,000, based on his age, interest rate levels and other factors. In this case, the borrower might pay about $13,000 in upfront fees — including a $4,000 loan origination fee, $4,000 in mortgage insurance and a $4,000 "set-aside" to cover servicing costs for the life of the loan, according to Fannie Mae, the federally chartered lender.

Based on recent interest rates, such a loan might come with an adjustable interest rate of about 6%, with interest charges compounding during the life of the mortgage.

A reverse mortgage is not necessarily a bad idea on it's face. A senior can still live in their home while getting some cash, hopefully needed cash, for living expenses. But as the excerpt above shows, the rates and fees for these loans are astronmical. A reverse mortgage is a very secure loan, likely more secure than a mortgage. But lenders are raping older people as they provide this "service". The fees and interests rates are usury and should be stopped.

If the time comes where I might need cash from my home, I'll sell it. That may represent a stress. But I'd rather deal with that stress than the feeling that someone like Countrywide Home Loans is bending me over.