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bad things about reverse mortgages

Reverse Mortgage Tips

Vera Gibbons spoke with Julie Chen about when is a good time for a reverse mortgage and what to look out for.

Canadian Reverse Mortgage Debt Just Made One of The Biggest Jumps Ever

More Canadian seniors are withdrawing real estate wealth to make ends meet. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of reverse mortgage debt soaring in October. The annualized pace of growth is now at the highest level it has been in at least 8 years.

Reverse Mortgages

Have all your money in your house, but you need some extra cash to hold you over until the sweet release of death? That’s exactly what reverse mortgages are for – house rich, cash poor seniors. The borrower borrows against the equity in their home, and receives either a lump sum or regular payment. They’re similar to a home equity line of credit (HELOC), but a reverse mortgage is for someone 65 or older, and the borrowing rates are generally higher than a HELOC. Oh yeah, and you don’t have to make payments on these loans.

A reverse mortgage might seem like a good idea, but consider the demographic it targets. Seniors aren’t likely to get a windfall of new income in their golden years. This makes it unlikely they’ll be able to pay back their loan in a timely manner. Since they don’t have to make payments, it may not seem like a problem. However, borrowing at a relatively high rate while not making payments is a quick way to vaporize your net-worth.

12 Ways You Can Get More Money in Retirement

Source: Calculations by author.

No. 6: Include dividends in your portfolio

When you need money in retirement, you might sell off shares of stock from your stock portfolio, but with dividend-paying stocks , you can collect income without having to sell any shares. A $300,000 portfolio, for example, that sports an overall average yield of 4% will generate about $12,000 per year -- that's a very useful $1,000 per month.

Dividend income isn't guaranteed, but you can lower the risk by spreading your money across a bunch of healthy and growing companies. Know, too, that dividend payments tend to be increased over time, and that can help your income keep up with inflation. You don't even have to expertly select the perfect dividend payers. You can enjoy dividend income from broad-market index funds such as the SPDR S&P 500 ETF  (SPY), which recently yielded 1.8%. A dividend-focused exchange-traded fund

what are the bad things about reverse mortgage ? what makes it a bad choice?

It's really going to depend on your situation. What are your goals, and when do you wish to accomplish them.

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