Substantial break cost fee
You need to be aware that this is one of the most insidious loan arrangements we have come across. The reverse mortgage for people with the full equity in their home are borrowing a small amount of money late in life with the interest rate being a higher rate of interest than on a normal loan compounding monthly and if a fixed rate, which most elderly people seek, there is a substantial break cost fee when the loan is discharged. This loan cannot be paid down nor can you pay interest on it during the time of the loan it either needs to be paid out in full or stays there accumulating compound interest. A recent example we have is of an elderly lady in her early eighties borrowing $40,000 in 2006 at 8% which is now $93,000 and climbing, the lender involved refuses to advise how the break costs are calculated and simply sits there as first mortagee refusing to budge until paid out in full. There are other facilities to borrow small amounts of moneys for elderly people and some of the funds can be used to pay interest so that the loan does not increase. You need to be aware of these pitfalls before any of your relatives or you are thinking of taking out a reverse mortgage.
© 2014 Grogan & Webb