Never use a reverse mortgage for investment or annuity.

The New York Times reports on what I would call a reverse mortgage scam. Mortgage brokers, working in cooperation with counselors -the law requires counseling for people getting a reverse mortgage – convince seniors to take out more money than they need and then invest some of it in an annuity or other investment.

This never makes sense. The interest you pay on the money you take out with a reverse mortgage will almost always exceed what you get back from any investment you make (unless it happens to be a winning lottery ticket) and it will always (no exceptions) be more than any annuity will give you in return.

Reverse mortgages are not bad, and can be very useful in many cases. But you should never use them if you plan to leave your home in less than seven years. If you do use them, you should take as little as possible up front (you have to pay any outstanding mortgages and closing costs, and you may need house repairs). and then get regular monthly payments for what you need to live.

If anyone ever suggests anything different, do NOT do business with them.

Compare Reverse Mortgages to Regular Mortgages

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