Divergent views of the risk of reverse mortgages from Iceman and Balance.
Time to run through a few scenarios to allow Balance to maintain hiser cool?
Example: 85 year old couple take out a 40% REL loan at an 8% interest rate for ten years. House price falls 20% over first five years of loan then flatlines for the next 5 years. We will say the house is worth $1m at the start of this process to keep the numbers easier.
1/ Value of property at the end of the loan period is $800,000.
2/ Loan taken out $400,000.
3/ Interest accrued over first year: 0.08 x $400,000 = $32,000. The interest accrued over a ten year period is listed below:
|
Cumulative Loan Capital at Start of Year |
Interest Accrued over Year |
Year 1 |
$400,000 |
$32,000 |
Year 2 |
$432,000 |
$34,560 |
Year 3 |
$466,560 |
$37,245 |
Year 4 |
$503,805 |
$40,304 |
SNOOPY