Mortgage retirement is a subject that I tried to avoid on this Web site. Simply because I do not have any firsthand experience on this subject. My opinion would be just that: an opinion.
The closest exposure I got to this type of scheme was when a Swiss friend, living in Zurich, excitedly told me about the deal he concluded. He and his wife don't have children. They have rented an apartment all his working life. At retirement his Swiss bank approached them with this deal:
They purchased a brand new apartment of their choice. The bank gives them a 100% loan. They repay monthly the interest on this loan. At the death of the last one of them, the loan gets cancelled and the property reverts to the bank.
Interest rates are near zero in Switzerland, so their monthly 'rent' is much less than the regular rent they were paying.
I suppose this deal can only happen in Switzerland where inflation is near zero, where the window for repayment of mortgages can stretch over generations, and where the quality of material used for building is such that it would last a hundred years.
Variations of this concept is found all over the world. In Italy it's called nuda proprietà – translated 'naked property'. In France it is called viager – a word for pension.
It is probably best developed and regulated in the United States of America. It is also in the US where most reports of 'abuse' originate.
It is clearly a case of caveat emptor – let the buyer beware! But that's true for any investment or deal.
Let's list some features that make reverse mortgages attractive to retirees who own a home:
If you are considering a reverse mortgage, do invest the time to attend a reverse mortgage seminar before you attend a counseling session with an expert specialist. The key is to understand all aspects of the deal and to eliminate uncertainty!
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