Is It Wise To Use Reverse Mortgage Money For Investing?

7/12/2007

posted by N. Sioris

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A commonly cited feature of reverse mortgages is that the money you receive from your reverse mortgage can be used for any purpose you choose. After all, it is your money! However, does that necessarily mean that all of the uses people come up with are good choices?

You may be considering taking your reverse mortgage loan proceeds in a lump sum so that you can invest the money in something that you think might grow quickly or offer a high rate of return or a higher amount of income than the reverse mortgage tenure option provides. If you are fairly sophisticated when it comes to evaluating and understanding investment opportunities or if you could absorb the loss of such an investment, then using your reverse mortgage money in this way might be an option for you. However, if you have little or no investment knowledge or experience you may well heed the advice of AARP on this subject. What AARP says is: "Investing the money you get from a reverse mortgage is a highly questionable practice. It is extremely unlikely that you could safely earn more from an investment than the reverse mortgage loan would cost you."

You have heard the expression "risk reward ratio". Usually the higher the reward or return, the higher the risk of losing all or part of your principal investment. If your home is your biggest asset you should be extremely careful if you liquidate that asset in a lump sum and invest it in a vehicle that could lose all or part of its' value. As an older person in retirement you would probably have no way of recovering from such a loss during your lifetime.

So the answer to the question of whether it's wise to use your reverse mortgage money for investing is: It just depends. For some people it might be OK. For others it could be a disaster. If you are considering such an option, make sure you seek the advice of a trusted or professional adviser - someone that has nothing to gain in the way of sales commission or fees for their advice to you.