I am a broker that specializes in the reverse mortgage industry. My company funded 350 reverse mortgage loans in Southern CA in 2007, zero 'traditional' mortgages (what we call forward mortgages). I wanted to make a key point about reverse mortgages as there are many misconceptions about them.
Although our clients are typically lower income individuals, occasionally we sell the product to a knowledgable individual with a high level of assets. I will use myself as an example.
I am 50, single, have no mortage on a house now worth about $550K, and I have a sizable amount of additional assets, but I can't wait to take out a reverse mortgage when I am 62. The reverse mortgage will cost me about $15K, and it will provide me with about $235K (once the FHA lending limit goes up from $362K to $417K, which should occur within 30 days). However, instead of taking possession of the $235K, I will leave it in what is termed a "credit line growth account", where the money will grow at a rate that is 150 basis points over the ten year treasury. So with today's rates, my account will growth about $12,000 the first year, $12,500 the 2nd year, and so forth. The rate applied to my account varies as the 10 year treasury varies.
When I do begin drawing money out of the account when my other assets have been exhausted (probably when I am about 80), both the initial money ($235K) and the accumulated money is available TAX FREE. Both the initial and accumulated money is guaranteed by the U.S. federal government. Where else can you find an investment guaranteed by the US gov't that grows at 150 basis points above the 10 year treasury that is tax free? The risk/reward on a reverse mortgage is unbeatable - bar none.
Let's assume that I die before I take any money out of the creditline growth account. Since I did not take any of the money, there is no incumbrance on my property. My heirs just notify the bank, and the creditline growth account goes away (both the initial amount and accumlated additional money). The heirs get the house free and clear. In order for this scenario to incur, I need to send a $300 check to the loan servicer each year (there is a monthly service fee, typically $25.
For any money that I do withdraw from the acount, the interest that I am charged is always 50 basis points less than the rate that I am paid on the money remaining in the credit line growth account.
This aspect of reverse mortgages is currently not well understood, but I believe it will become my commonplace in the future.