How is the option different from a reverse mortgage?
The Option does not create a debt or subject the property to a lien as does a reverse mortgage.
Are there other differences?
Under a reverse mortgage the portion of your home’s equity consumed by the mortgage depends on interest rates and longevity. In some cases all of the equity may be consumed. In some reverse mortgages the owner is required to pay for mortgage insurance guaranteeing the mortgage, an expense not required under the option.
How much money can I receive under the option?
Approximately 10% to 15% of the property’s present market value.
Will there be fees and other upfront costs?
Yes, but they will be minimal. The AARP says of the reverse mortgages that “there are substantial upfront fees (i.e. mortgage insurance premiums, loan origination fees and closing costs.)” as well as various ongoing fees.
Will I have to move?
No, you may remain in your home as long as you wish.
How much of my equity must I give up?
When the Option becomes exercisable, the investor may purchase the property at a price discounted from its then market value. That discount includes 1) the option price paid to the owner, and 2) a sum based on a small percentage of market value multiplied by the number of years the option is in effect. This formula means that you will always know what portion of home equity remains yours, subject, of course, to market fluctuations.
Is that required in the option?
No.
HERO: Home Equity Retirement Options 