Vessel’s home equity investment program has some similarities to reverse mortgages (RMs) in that it requires high equity to qualify for, and both have involve the concept of the amount owed increasing over time. But the similarities end there.
Aspects of Reverse Mortgages that are not true for Vessel’s program:
Only available to the primary residences of people over 62.
Owner required to pay for mortgage insurance
If owner moves out of the house, even to stay in an elder care facility, the balance becomes due in full, often forcing a sale.
If the owner dies, the balance becomes due and can not be transferred to heirs
It is an interest-accruing debt product. If the home value goes down or up, the owner owes the same amount.
Very high upfront costs, including 2% of home’s appraised value (not loan amount) for mortgage insurance.
No free market for determining rate charged. Vessel gets owners the lowest rate anyone will offer.
An analogy for finance people: a reverse mortgage is like a convertible bond, and a Vessel investment are like a dividend-paying stock.
In more layman’s terms, a reverse mortgage is a loan whose interest accrue to the principal balance instead of being paid; a Vessel investment offers fraction home value with an annual payment optionally being converted to a greater share of home value. With a Vessel investment the final amount “owed” varies greatly based on home appreciation or depreciation.
There is one benefit of Reverse Mortgages that is not true for Vessel investments
Balance can accrue indefinitely while the homeowner is alive and living in the house, even if the loan balance exceeds the home value. With Vessel, pay-off is required in a certain number of years, but they could also issue a new Vessel investment to pay off the first. Reverse mortgage lenders make sure it is unlikely that the home goes “underwater” and require mortgage insurance to cover them if it does.
