Reverse Mortgage Good Idea?

Allen asks Dave if a reverse mortgage is a good idea.

QUESTION: Allen’s father-in-law was talking about doing a reverse mortgage on his house.  Is that a good idea?

ANSWER: It’s a really bad idea for elderly people who have a paid-for house to borrow on their house.  That’s basically what a reverse mortgage is.

With a regular mortgage you make payments and the balance goes down.  With a reverse mortgage, you receive a monthly payment and the balance goes up.  You’re borrowing more and more each month, and it’s a scary equation for the elderly.  A paid-for house gives an older couple a lot of peace.

They should live on a tighter budget or sell their current house and move to a more affordable house so they have more money for the things they want to do in their retirement.