So they loan you money for 10% of the appraised value? How do they make any money that way, or perhaps I still don't understand.
In any case it is for only those that want to stay in their home and can't afford to do that otherwise.
1) Have to be at least 62. At that age you will get available (after costs) approximately 45% of appraised value (recently dropped).
2) The older the youngest borrower is (assuming there are 2) the more loan to value they give you. For example an 80 year old will get a higher ltv than a 65 year old. Why? Because all things being equal he will die sooner so there's less time for the unpaid interest to be added to the amount due.
3) There are three products. 1) fixed (in the 5% range) 2) Annual adjustable with 2/5 caps and 3) monthly adjustable with a 10% (over start rate) lifetime cap.
The adjustable rate now is in the 3.5 - 4% range.
Added to that is mortgage insurance of 1.25%. That insures the borrower will get all funds if the lender goes under and insures that if the borrower gets upside down neither he nor the heirs are responsible for the deficit. It's the only mortgage where that applies.
The interest is added to the principle balance and paid to the investor when the loan is paid off. Interest and MI are only charged on funds taken and untaken funds increase by the rate plus MI.
It's NOT for those who can't stay otherwise. It's a tool to use your biggest asset to improve retirement if needed.
Example 1: You have a $400K house free & clear. You only pay taxes and insurance. You're 70 years old. A reverse mortgage will give you access to $225,000 with still no payment.
Example 2: Same house but you owe $225K with a $$1,600 P&I payment. Reverse it and your payment goes away improving your retirement cash flow by $1,600.