Many deceitful institutions use the word income when referring to the cash flow from reverse mortgages. Such phrasing is an outright lie.
If you put a credit card into an ATM and get cash, did your income just rise by the amount you took out? Of course not! In fact if you paid a fee to get cash, your expenses went up by that fee while income was unchanged; your net income actually went down.
Reverse mortgage payments are like credit card cash advances on steroids. When you receive money through a reverse mortgage, you are borrowing money. Nothing has been earned. The amount you owe grows every time you receive money, and it grows at an increasing rate daily as interest and mortgage insurance are charged on an ever-growing balance.
For example, assume you are 65 years old and live in a home valued at $300,000. You decide to get a monthly stream of cash for life through a reverse mortgage with a 5% interest rate. Using H.U.D. (the U.S. Department of Housing and Urban Development) guidelines and industry norms you could expect monthly payments of $912 and closing costs of $7,252.
Upon receipt of your first $912, you would owe the bank $8,164: the first payment plus the closing costs. During the first year you would receive cash totaling $10,944. Meanwhile your mortgage balance will grow to $19,290.
Your income did not go up; net, your income for this one year dropped by $8,346!
Assuming you stay in your home and the flows continue, by the 16th year you will owe more than the $300,000 value of your home, after receiving only about $165,000. This is hardly income: at this point you will have lost $135,000!
But income was indeed generated…for the bank.
Get the whole picture. Read The Final Rip-Off: Reverse Mortgages available at Amazon and Barnes & Noble.