Be careful with reverse mortgages

Apparently there are some banks pushing reverse mortgages claiming that it will allow them to reap a larger Social Security benefit down the road by delaying Social Security payments to a later age. The Consumer Financial Protection Bureau (CFPB) has studied this claim and says it's not a good deal.

“The CFPB examined different scenarios and found that, in general, the reverse mortgage loan costs exceed the cumulative increase in Social Security that homeowners would receive in their lifetime by delaying Social Security benefits. Furthermore, using this strategy will likely diminish the amount of home equity available to borrowers later in life. As a result of the diminished equity, borrowers that seek to sell their homes after using this strategy may have limited options for moving to a new location or handling a financial shock.”

When you take out a reverse mortgage loan of this type, you "assume debt for the principal loan amount, as well as for interest, mortgage insurance premiums (MIP), and monthly servicing fees, which are added to the principal every month. In addition, origination and closing costs are often added to the loan balance since most consumers choose to finance these costs using the reverse mortgage proceeds. Over time, the balance of the loan increases as a result of compounding interest and MIP, and fees. The increasing loan balance will slowly reduce the available home equity to homeowners who wish to sell and move.”