I have written about reverse mortgages before, as they are an interesting beast, and popular in some retirement communities. One problem with them, is that they can limit your options in retirement, and squander the nest egg that is your principle residence.
A recent article on NBC news, which has re-designed its website to look like Windows 8 (no, that's not a compliment) analyzes the reverse mortgage concept.
"However, Mason explained, these loans come with a lot of fees.
The maximum origination fee allowed for a federally insured reverse mortgage, formerly called a Home Equity Conversion Mortgage, or HECM, is 2 percent of the initial $200,000 of the home's value and 1 percent of the remaining value, with a cap of $6,000, according to the National Reverse Mortgage Lenders Association.
You will also owe a mortgage insurance premium fee based on the amount of funds withdrawn during the initial year. That fee is 0.50 percent of the appraised value of the home if you take no more than 60 percent of the amount available in the first year, and 2.5 percent if you take more than 60 percent of the available amount. On a $200,000 home, 2.5 percent amounts to $5,000, and 0.50 percent is $1,000.
You will also owe a mortgage insurance premium annually, which accrues over time when the balance comes due. The annual premium is equal to 1.25 percent of the outstanding loan balance.
There are also appraisal fees, which vary by region but average around $450. If the appraiser determines that your house requires repairs, you will be required to complete the repairs as a condition of approval.
Finally, there are closing costs, which are comparable to those of any mortgage loan and often amount to about $1,000. Some lenders will also charge a $35 monthly service fee for the life of the loan, but most have dropped that fee, according to Trawinski.
"These loans can be expensive," she said, noting it all depends upon how much you borrow initially. "If you take out a lot of money upfront and exit the home in a very short period of time, it can be a very expensive way to borrow money."
Now this scenario was based on my being age 62, the earliest age you can take out such a loan. After ten years, you have taken out $128,280 in cash. Over 20 years, $256,560. In other words, this is about an average between my 10- and 20-years scenarios, and if you stay in the house 10 or 20 years, the numbers will crunch out about the same.