" Reverse Mortgages " seem to be the flavour of the month at present. They are being widely advertised by the entire financial spectrum - and that message is appealing to many people who are asset rich - cash poor.
The idea has appeal. It allows homeowners to unlock some of the value held in the family home to allow them to replace ageing appliances, do renovations - or just have a modest income stream to supplement the pension.
The term " reverse mortgage " is an apt description. Instead of paying off a mortgage the owner extracts money from the home asset without the need to pay in back by way of regular payments. Payment occurs when the homeowner dies - or sells the home.
But - this is an incredibly risky gamble. All the calculations are done on the financial factors current at this time. It assumes that the value of the home will be constant or may even improve with inflation. It assumes that interest rates will not increase sharply in the months and years ahead - and that is something beyond a reasonable prediction.
It would be so easy for interest increases to see equity in the home spiral out of control - with the aged owner facing a financial nightmare. At best, those taking up the offers of reverse mortgages are taking a gamble.
Most would be well advised to think long and hard before signing on the dotted line.
A better course without the risk would be to consider putting the family home on the market, using a portion of the return for the purpose the reverse mortgage was considered - and then buy a cheaper home or unit to preserve the remainder of the nest egg - and guarantee a secure place of residence during the rest of their lives.
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