There is no doubt reverse mortgages today are a more attractive proposition than they were not that long ago, but I don’t join the love affair some seem to have with the products. There are several aspects that bother me.

Let me start with what I believe to be improper interpretation of the academic studies that show reverse mortgages to be helpful in sustaining retirement cash flow. I do not dispute the findings. It makes perfect sense that the retirement cash flow picture can be enhanced by tapping home equity.

The interpretation problem comes from treating the reverse mortgage like it’s a free ride. It ain’t.

Too many people treat reverse mortgages as something for nothing. That’s dead wrong. Reverse mortgages must be paid back. Because servicing payments are not required and the maximum payback is capped, they can look friendly compared to more conventional mortgage products. Zero mandatory periodic payments and zero reach back should it go underwater. Nice.

The cost, however, is not zero. The rates are higher than conventional mortgage products. As I write this, Bankrate reports average fixed rates of 3.4 percent on a standard conventional 30-year mortgage and 2.7 percent on a 15-year. That’s low.

In many cases the costs of a reverse mortgage are unknown because most reverse mortgages carry variable interest rates, usually tied to a short term LIBOR rate. The LIBOR rate is added to a fixed lender margin and mortgage insurance. At a recent conference session I attended, a member of the Swiss army boasted the combination of the insurance and margin was “only” 3.5 percent.

It is not hard to imagine a scenario in which a borrower that is attracted to a reverse mortgage because no current payments are required opts not to make payments and the compounding nature of interest increases the loan balance to the point the borrower can’t pay it off. The loan eats up all the equity in the home.

Rates don’t have to increase much to accelerate the process of wiping out the equity. That may be a perfectly acceptable trade-off for some, but the reverse mortgage is a debt that needs to be managed to optimize the use of the home equity asset.

Improper interpretation and poor strategic uses are avoidable through study and education. Here is a quick reading list to help with that.

"Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage" - Shaun Pfeiffer, Ph.D; John Salter, Ph.D, CFP, AIFA; and Harold Evensky, CFP, AIF. (Journal of Financial Planning, 2012).