A reverse mortgage can be risky. You can even lose your home. While there may be legitimate reasons for a few people to get a reverse mortgage, too often they are used to take people’s homes. In this article, I discuss the risks of getting a reverse mortgage, who might legitimately want to get a reverse mortgage and how to avoid getting scammed.
The reverse mortgage industry is big business and scammers are always on the prowl. Keep in mind that reverse mortgages would not exist if there wasn’t money to made with them.
Also, you should know that it is possible to lose your home after you take out a reverse mortgage.
There are situations where a legitimate reverse mortgage might be a reasonable option. However, because the industry is known for scams and unscrupulous brokers, proceed with caution and consult with a trusted lawyer and financial adviser.
What is a Reverse Mortgage Loan?
A reverse mortgage is a loan where your home is the collateral.
The difference between a reverse mortgage and a traditional home loan or equity loan is that the lender intends to take possession of the home when the borrower dies.
Typically, if the homeowner moves out or sells the property, the reverse mortgage must be repaid.
Be aware that there are substantial risks with reverse mortgages.
Reverse Mortgage Explained.
Only homeowners who are 62 years old or older can qualify for a reverse mortgage. Also, they must also live in the home as their primary residence and have title to the property or have substantial equity.
HECM Reverse Mortgage Purchase.
The HECM, otherwise known as a Home Equity Conversion Mortgage available through Fannie Mae, is the most common form of a reverse mortgage.
A Reverse Mortgage is Different.
The biggest difference between a traditional home loan and a reverse mortgage is that a reverse mortgage does not require the borrower to make payments. Instead, payments are made to the homeowner.
Reverse mortgage payments may be monthly revenue, a line of credit, lump sum or a combination of monthly payments and a line of credit.
Reverse Mortgage Disadvantages and Dangers.
Reverse mortgages can be expensive and complicated. Unfortunately, some mortgage brokers trick seniors into getting a reverse mortgage with false promises and lies.
However, even legitimate reverse mortgages are not recommended for everyone.
The Reverse Mortgages Scam.
Senior citizens who are eligible for reverse mortgages are also the most vulnerable to scams.
When considering a reverse mortgage, assume the broker will try and scam you. Make them prove to you they are honest and reputable.
Signs of a reverse mortgage scam.
Below are obvious signs of a reverse mortgage scam.
Beware of High-Pressure Sales Pitch.
When pressure is used in any sales situation, it’s a clear sign of a scam. Hang up the phone. Walk away.
No one can make a rational decision under pressure. When you are pressured to make a decision, you are not being treated fairly. And if you’re not being treated fairly, you know darn well you’re about to be scammed.
Never do business with someone you can’t trust. If the sales person is using pressure, you can’t trust them. Walk away.
Pressure is a clear sign they don’t care about you. They only care about your money and getting as much of it as they can. Walk away!
It’s not unusual for a reverse mortgage company to advertise “Free Money” in their marketing letter.
There is no free money with a reverse mortgage. The amount of the loan is determined by the value of the home and the equity that has accrued.
Also, there are fees and conditions associated with any reverse mortgage. Remember, the big print giveth and the small print taketh away.
Can You Lose Your Home with A Reverse Mortgage?
It is possible to lose your home with a reverse mortgage.
Unfortunately, some brokers will intentionally mislead you by claiming you can’t lose your home when you get a reverse mortgage. This is NOT true.
A reverse mortgage is a loan and, like any loan, it may become due and payable. In other words, a reverse mortgage is subject to foreclosure like any other mortgage.
Here’s how you might lose your home if you have a reverse mortgage:
The home is sold, or the title to the home is transferred.
The borrower moves out of the home for more than 12 months.
The borrower does not pay the taxes on the home or fails to keep insurance on the home or fails to maintain the home in a reasonable condition to sustain the property’s market value.
If you are considering a reverse mortgage, it is essential that you understand the property can be foreclosed for relatively minor issues such as failing to keep the property insured or maintained.
Additional conditions for foreclosure will be listed in the contract. Read it carefully.
Include Both Spouses.
Some brokers will encourage a homeowner to put only the oldest spouse on the reverse mortgage. This is a trick to take possession of the property as early as possible.
The amount borrowed with a reverse mortgage is based, in part, on the age of the borrower. And the loan becomes due when the last borrower dies.
The Danger of Getting a Reverse Mortgage Too Soon.
If you get a reverse mortgage when you are still in your 60s, you may outlive the loan and lose your home. Remember, if you run out of money and can’t pay the taxes or insurance on your home, the lender has the right to foreclose.
Who Should Get a Reverse Mortgage?
There are situations where a reverse mortgage makes sense. However, these situations are not nearly as common as many brokers claim.
If you are elderly, own a home and need income, a reverse mortgage might be appropriate.
An ideal candidate for a reverse mortgage might be an 87-year-old widow with health issues who needs additional income to pay for health care, housekeeping, and assistance with daily activities.
A properly structured reverse mortgage would allow her to continue living in her home and also pay the additional expenses.
However, in any case, proceed with caution when considering a reverse mortgage. If you determine a reverse mortgage might be a reasonable solution for your situation, shop among brokers.
Do not choose a broker simply because they sent you a letter. Keep in mind the obvious signs of a scam mentioned above.
For More Information, see the resources listed at the bottom of this article.
Who Should NOT Get a Reverse Mortgage?
Reverse mortgages are NOT appropriate for most people.
If you are not approaching the end of your life, a reverse mortgage is probably not for you.
Reverse Mortgage Alternatives.
Don’t risk your home because you are struggling financially. Instead, use the situation as motivation to earn more money.
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Info Reverse Mortgages.
AARP’s reverse mortgage webpage: www.aarp.org/revmort.
Reverse mortgages insured by the U.S. Federal Government through Fannie Mae) www.hud.gov Search for “Home Equity Conversion Mortgage.”
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