The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: NathalieBou on April 11, 2019, 11:52:17 AM
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Hi,
I would like to hear from people who are not affiliated with a bank and who could give me a neutral opinion. I would like to know the difference between a normal mortgage and a reverse mortgage.
Also, considering the interest rates on rather high amounts on the purchase of a house, what is your strategy? Give all your money in the house as an investment that can be used in retirement? Refund at normal speed and take RRSPs? Invest in the stock market? What are your tips for a peaceful retirement?
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A reverse mortgage is normally offered only to senior citizens who start out with paid-off houses, as a way to let them tap into their home equity to fund their retirement lifestyle. It's meant for a completely different situation than a regular mortgage, offered to someone who doesn't have enough capital to buy a house outright, but is still earning money that can pay for the house over time.
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Reverse mortgage and traditional mortgage are completely different products, doing different things and serving different needs. A traditional mortgage allows you to borrow money to buy a house you don't yet own. A reverse mortgage is basically the bank paying you money periodically to buy some of the equity from you for a house you already own (but own less and less of as they buy more and more equity). It's a bit like me saying, "I will buy half your $200,000 house for $100,000, and you get to live in it until you die, at which point your family needs to either buy back my equity or sell the house" except it is done a little bit at a time and there are more fees involved.
We argue a lot here about whether to pay down a mortgage (or put the maximum possible down) or to pay the minimums. You can search for the threads. They can get quite heated. Personally, I don't pay extra on the mortgage and instead maximize investments into the stock market.
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We argue a lot here about whether to pay down a mortgage (or put the maximum possible down) or to pay the minimums. You can search for the threads. They can get quite heated. Personally, I don't pay extra on the mortgage and instead maximize investments into the stock market.
Ditto, but it's not a one-size fits all. My mortgage is 15 years and 2.75%. As a result, I have nearly no incentive to pay off the mortgage early. If my interest rate were 5-6%, I would probably hedge and invest and pay down the mortgage a little.
And, to the OP, there are different types of mortgages, but your question doesn't aim at that -- a reverse mortgage should probably go by a different name because it's totally irrelevant to someone looking to buy a home on the marketplace.