No. of Recommendations: 3
You are neglecting to mention 2 important issues:

- The origination costs of reverse mortgages are charged based on the value of the home, not on the value of the mortgage taken out. And the Mortgage Insurance Premium on reverse mortgages is 2 points, based on the value of the home, up front. So, if the senior were to take out a $75k mortgage on a $100k home (often not possible, depending on the age of the senior, and valuations in the state, but more on that later), they will charged an upfront fee of $2,000, based on the value of the home. A $2,000 fee on a $75k mortgage is equivalent to 2.67 points.

- In addition to interest charged on the reverse mortgage, the servicer also adds a monthly servicing fee each month. (Note - In forward mortgages, a monthly servicing fee is also charged, but it's charged to the investor in the mortgage, not to the homeowner.) I think my Mom was quoted a $15/month fee when we looked into a reverse mortgage for her home a couple of years ago. This means that the principal balance will actually grow by the interest plus the $15 (or whatever it is) fee.

$100,000 home.
$75,000 reverse taken out @ 5%

That's a pretty aggressive lump sum equity amount to be taken out in a reverse mortgage. There is a link to the a HECM calculator on this HUD webpage When I put in information about a 75 year old with a $100k home, depending on which type of interest (variable, fixed) and which type of loan (standard, saver) is chosen, the initial lump sum ranges from $45k to $65k. For a 65 year old, the amount allowed to be loaned is even less - $41k to $59k.

So all of your calculations on when the money becomes 'free' are too aggressive based on what is initially allowed to be loaned. A $50k loan at 5% plus a $15/month service fee on a $100k home would not exceed the $100k original value of the home for 159 months (13 years and 3 months) That's a over 2 1/2 times longer than the 5 years your example gave for the 'no appreciation' scenario. And with any appreciation at all, the time frames increase further.

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