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Based on what I read, the initial advance begins drawing interest immediately. Using a basic formula to illustrate how this works, the next month the principal balance includes the advance (A) plus the first month's interest (I no. 1). Then the next month the amount outstanding includes A, plus I no. 1 and I no. 2 - in other words, the outstanding advance, plus interest for the next two months.
Each month interest is applied on the previous month's outstanding balance, and so it goes as interest adds up and up quicker than eating a dozen chocolate bars adds weight.
If someone is in need of funds and wants to get a mortgage, a standard equity line is better. I don't see how anyone who does need money can get an RM and ever think of paying it off, unless that person anticipates winning a lottery or finding a pot of gold at the end of a rainbow.
Perhaps these egregious terms no longer apply to RMs; I don't know and would only consider getting one if I was broke and needed money desperately, such as for end of life medical care, or if I wanted to "stick it to" an RM lender, with deliberate intention to use the money, not worry about paying it back, and let the lender have the house.
Sbopie, your father would retain title to the home, SUBJECT to the interest of the reverse mortgage lender. Title is NOT transferred when the mortgage is recorded. If it was, there would be no purpose whatsoever for the owner to make mortgage payments.
However, you or the family would need to be able to pay off the RM entirely in order to discharge it completely.
And if you or your father did want to do this, you/he should hire a transactional attorney with experience in RMs, to ensure that it is entirely discharged and the title becomes free and clear of that obligation.
It is almost always getting good financial advice, then making the best decision you can for YOU. Not always best for your heirs and so on. But....
I ask because my brother inherited Moms house but didn't want the responsibility of the debt that had accumulated in taxes. We had to use a lawyer to have the house put back into the estate. When it sold all debts were satisfied.
But the reverse mortgage money will have to be repaid to the Reverse Mortgage Co. which paid him out money monthly with the home as collateral. So it works like this. Dad gets a Reverse Mortgage on his home which pays him 200.00 a month for instance (virtually a loan) with the home as collateral.
Upon Dad's death the Mortgage money is owed to the Company. If Dad got 200.00 a month for a year and then died, there is 200.00 x 12 months plus fees/interest/whatever owed to the Mortgage Co.
So the home will not be inherited free and clear.
When my partner's Mom died he owed the mortgage company 50.000.00 which had been paid out to his Mom. That was paid. The remainder was the money of my husband, upon sale of the home, as he was listed to inherit in the will.
Go to YouTube and type in Reverse Mortgage and many will explain it in black and white.
Also, do know, you shouldn't take the knowledge or advice of the forum folks, brilliant as we all are in matters of law, money, other crucial things. Please have these things explained to you by the company or by your own lawyer. In all these matters it is critical that you get it right. Wishing you luck.
You can also look up "what is a reverse mortgage" on google and be certain you don't click on an ad, but on a .org organization that is there to explain it to you.
I agree, if a home cannot be afforded, it needs to be sold and downsize. Reversed mortgages maybe good for people with no families.