If I get squashed to a pulp, my brother get the cash from the reverse mortgage, collects my homeowners insurance, pays off the mortgage company and pockets the balance. The bank never owns the house in this instance. You can always sell it but you can not rent it. It has to be your main residence.
Originally Posted by TruckerMe
Let's say I live another 30 years. You are correct that the interest would accrue much faster than the appreciation of the house. In that case, the bank would probably be upside down on the mortgage. So, my brother would give the house back to the mortgage company without any stain on his credit. The bank charges a 1.25 % fee added on to the mortgage rate to protect themselves of that occurrence. In other words, the bank buys protection. The bank will not come out on the short end of the stick.
There are a bunch of myths and misconceptions about a reverse mortgage. In the last couple of years, the rules and regulations have been tightened up.