Funds From Reverse Mortgages

Q. Concerning reverse mortgages - Heard a financial person on radio saying one could get a reverse mortgage and invest proceeds in a CD and it would earn more than your home was worth in a few years. Is that true? Did I understand correctly that you cannot use funds from reverse mortgages until all your savings are depleted?

A. You can get a reverse mortgage before your savings are exhausted. In the article, I was making the point that tapping your home equity should not be taken lightly and that in most cases you should use other sources of principal before doing so.

The idea presented by the financial person on radio is a perfect example of what a reverse mortgage should not be used for. First, the interest rate you will pay on a mortgage is higher than current rates on Certificates of Deposit. So you will end up paying more in interest than you currently are.

Secondly, you will 'earn' the appreciation in your home's value regardless of whether you have a reverse mortgage or not.

I absolutely disagree with that recommendation.

For most people, their home's equity is their best savings vehicle and their greatest generator of wealth. Don't squander that.

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