The Financial Industry Regulatory Authority (FINRA) issued an Investor Alert to help investors make informed decisions on whether or not to take out a reverse mortgage. A reverse mortgage is a loan that is secured by the equity of the borrower's home. A reverse mortgage converts the equity into cash and the loan is paid off when the borrower dies or moves out and sells his or her home.
Investors should beware of a few things. Firstly, the high interest rates on reverse mortgages and the high fees that often come with a reverse mortgage. Secondly, the interest rates though are not payable as long as you live in your home and you don't sell your home, but they are still compounding for as long as you have the reverse mortgage and as you age, you may not be as alert to the interest that is due on top of the loan should you decide to downsize your home.
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