Consumer Reports has run long articles on it and hates them. People get them all the time and seem to think that they will never have a problem.
If you are single, you are gambling that you will have enough money coming out of the house to cover all bills until you die. The usual contract requires you to pay all taxes, insurance and maintenance. (If you fail to do that, they can foreclose.) Otherwise, the contract ends when you die, move, or move into a nursing home.
If you are married, you have to plan for the other spouse. If they aren't on the title and you die, they may be homeless.
If you had plans to leave the house to your heirs, forget about it. The house and the loan are part of your estate. If the house is worth more than the loan, the house is sold, the loan is paid off and your heirs get the remaining cash. (While the estate can get a deduction for the interest when the loan is paid off, the estate generally doesn't get anything by doing so.) When the house is worth LESS than the loan, the estate has to pay off the loan from other funds...unless the estate is completely out of cash. Some heirs have managed to negotiate a smaller amount and get the house, but any cancelled debt is taxable income to them because the estate wasn't insolvent.
The terms of the loan are among the most expensive loans on the market. You pay high closing fees and high interest rates. For most individuals, selling the house and moving into a rental would be a better deal financially.
· 8 years ago