If my understanding of a mortgage is accurate, in that you (for lack of a better word) sell your house to the bank and buy it back, in monthly payments, then a reverse mortgage would be the bank slowly buying your house out from under you. Ive heard it described as a scam to get the old and financially illiterate people out of their homes so the bank can resale the house at a profit. I have to assume I misunderstood some part of this cuz none of that seems like it should be legal.
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Suppose you did not plan well for retirement or have some other money troubles. You are too old to work, but you need/want a source of income to support you. The bright spot is that you own a home.
One option is to sell that home and move into a smaller home, apartment, with family etc. Obviously not an ideal situation, but nothing shady there. A reverse mortgage offers an option that is often more appealing than outright selling the home. It gives you a stream of income now in return for the promise that the next time you sell your home, enough goes back to the bank to pay for the money you’re getting now. In the end, you get less pure cash than if you had sold your home immediately, but you also get to continue living in that house and don’t have to pay rent/downsize/etc.
So a reverse mortgage won’t force someone out of their home, but it does ultimately look like the bank slowly buying it from them. It’s not part of a picture-perfect retirement and reduces the value of what your children inherit, but the same can be said for selling your home immediately. The real problem is whatever expenses cause you to need the money. A reverse mortgage is just a way of addressing that problem.
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