Are Reverse Mortgages a Scam?


Are Reverse Mortgages a Scam

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.

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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? 

Are Reverse Mortgages a Scam

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.

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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.

Are Reverse Mortgages a Scam
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?

Are Reverse Mortgages a Scam Old Lady Condensed

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.

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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.”

If you found this article helpful, please leave a comment below. Thank you.

30 thoughts on “Are Reverse Mortgages a Scam?

  1. Gary,
    This article I would consider to be a “must read” for people even thinking about getting a reverse mortgage. I have heard about them plenty of times in radio/tv/internet ads.

    The people doing the talking in these ads all want to make it 100% genuine that going through the process of securing a reverse mortgage is the best thing a person could possibly do, especially if they are in need of quick money. And as you said most likely it is a scam.

    The other somewhat close “business venture” associated with home owning is “flipping houses”. I hear all the time seminars being hosted by master “gurus” who make the claim that they have become millionaires flipping houses and by attending a 2-day seminar at a cost of $99 they guarantee that they will teach you all the tricks of the trade to allow you to become fabulously wealthy over a short time period as well.

    All scams because if it were so easy, -as is the case with people foolishly getting involved with reverse mortgages everyone would come out ahead financially. Instead a strong majority of the time the opposite happens! People lose money by the boatload.

    It especially sickens me that these reverse mortgage con artists go after senior citizens, some of whom may be suffering from a slight case of dementia, (as was the case with my mom before she passed away) and no longer able to think constructively about a lot of things, their lifetime money savings being among the more important considerations to value.

    I wish these scams would go away. But people, too many of them honestly viewed as flawed creatures, really it’s not going to happen. It’s truly pathetic when thinking about how some fraud people on this planet simply have no conscious at all over the damage they can afflict on their fellow human beings!

    Jeff

    1. Hi, Jeff!

      Thanks so much for your thoughtful and thorough comment about reverse mortgages.

      As a long time copywriter, I have learned the power of greed to trap people. Reverse mortgages, flipping houses, no money down etc and most all the other scams I come across, promise of fast, easy money.

      Who doesn’t want to make fast easy money? When scammers sell the dream of easy riches, if we get sucked into their spiel, our emotion of greed is triggered. Once that happens we are hooked and the scammer can reel us in and make us dance to their tune until our wallet is empty.

      Unfortunately, some of our institutions have been corrupted by this same predatory mentality. It can be difficult to know who to trust. This is why I recommend if someone is considering a reverse mortgage that they consult with a lawyer and a financial planner.

      As you mentioned, the saddest part is this is humans preying on humans. It is as if they have no feelings at all. In a documentary about the housing bubble, it showed how mortgage officers preyed on the innocent to write fraudulent home loans. The mortgage officer made huge commissions and lived large, buying expensive cars and houses. Many developed drug addictions too.

      All this extravagant waste was fueled by stealing money from the innocent. There is no telling how many lives they ruined. We must always be vigilant against the scammer.

      Thanks for stopping by,

      Gary

  2. I used to own my own place but fell victim to the last recession in the UK and lost it. Mine was just a straight forward mortgage. I nevver heard the term reverse mortgage until fairly recently and was really puzzled as to what it actually was.

    In principle I like the idea that you get a income from your property instead of paying out. I assume this draws the collateral or value out of your home?

    What happens when you die? does the home get taken over by the company or can it be left to your relatives?

    You are dead right there are certainly pitfuls and I can see how someone could be scammed by this easily.

    We have a thing in the UK called a secured loan which can release a lump of money against the value of your home which can lead to similar risks in that it can be repossessed. None of these options I like the sound of but I can see how it could be useful to some.

    1. Hi, Andy!

      I’m sorry you lost your home. The secure loan you mention you have in the UK sounds much like an equity loan we have in the US. And a reverse mortgage is very similar to an equity loan in that it draws on the equity, or value, in the property.

      Both an equity loan and a reverse mortgage are attractive to a lender when they know that the worse that can happen is they get the property at a steep discount and can easily sell it on the market for a substantial profit. On the flip side, if a person gets a reverse mortgage, the worse that can happen is they lose their home.

      To answer your question. Yes, with a reverse mortgage when the homeowner/borrower dies, the lender takes possession of the home. So, baked into the reverse mortgage is the lender’s desire that the homeowner/borrower dies quickly before the lender pays out much money. Kind of creepy, actually.

      Thanks for stopping by,

      Gary

  3. Thank you for explaining in simple language how a reverse mortgage works. I got a letter in the mail promising free money if I got a reverse mortgage. That didn’t sound right and your article showed why. I would hate to lose my house. It’s the only thing I have to leave to my daughter. Thanks again for telling the truth about reverse mortgages.

    1. Hi, Syikien!

      I’m so glad I could help. Reverse mortgages really are not suitable for most people, but in a few cases they might make sense. Anytime you might borrow money against your house please speak with a financial planner and a real estate attorney. Paying their fees for advice can save you a lot of heartache.

      Thanks for stopping by,

      Gary

  4. Gary – thanks for the info on reverse mortgages. The fact that they pay you money (instead of the “reverse”) is what makes them so attractive I’m sure. I have to admit being tempted to go this route given all of the TV advertising that is going on about them, which makes them seem like a legitimate way to finance things. I appreciate your tips like, when talking to the banker, to make him/her prove their trustworthiness. But to be honest I will probably quit thinking about this option now … as you have so clearly shown you can lose your home using this method if you aren’t careful, and for such a big-ticket item there are many out there that aren’t looking out for your best interests. Thanks again.

    1. Hi, Randy!

      Thank you for your thoughtful comment. I’m pleased you found my article about reverse mortgages helpful. In a few cases they might be appropriate, but in most cases a reverse mortgage should be avoided.

      Thanks for stopping by,

      Gary

  5. I absolutely love your website. First of all the information on Reverse Mortgages is great and would be of help for anyone considering the possibility.

    The way you write seems effortless and is very descriptive with a completely honest feel. I think our visitors are looking for that honest site and honesty is the primary feel I am trying to accomplish, but you my friend, have accomplished it!

    I’ve been a paid member of WA for approximately 1 month and can agree with you, it is great! I have completed all the training and still was able to snag something new from you.

    Thanks for your service and continued success!

    1. Hi, Connie!

      Thanks for your kind words. I’m pleased you found my article about reverse mortgages helpful.

      It’s good to here you’re doing well with Wealthy Affiliate. I’ve been a member almost two years. It has changed my life!

      Thanks for stopping by,

      Gary

  6. Hi Gary,

    Thank you very much for this great and very informative post. My Mother is thinking about a reverse mortgage and I am going to let her read your article and ensure she looks at this properly and weighs up the pros and cons. It’s also good to know there are a lot of scam artists out there so extra diligence is needed.

    Thanks again, Nigel

    1. Hi, Nigel!

      I’m so glad you found my article about reverse mortgages. I hope it helps your mother as well. As she considers a reverse mortgage, I encourage her to also speak with a financial adviser and a lawyer. In a few circumstances a reverse mortgage can be helpful, but you are essentially selling the equity of your home when you get one.

      Thanks for stopping by,

      Gary

  7. Hi again Gary you are providing a lot of good information here and on all of your post it is nice to see someone who cares about the people that might otherwise lose their only possession to the scammers of the world,. I wish they could just be done away with but they can’ so what you are doing is a great thing here keep up the good info and good luck to you.
    Wanda!

    1. Hi, Wanda!

      It’s great to see you again. Thank you for your kind words.

      I’m optimistic that eventually, the search engines will de-index the scams so they don’t show up in the search results. Until then, it is essential that people research as much as possible before they spend money or sign a contract.

      Reverse mortgages can legally steal someone’s house, so it is important to consult with a financial planner and a lawyer before getting one.

      Thanks for stopping by,

      Gary

  8. This article couldn’t have come at a better time. I was talking to a client today that told me she was considering getting a reverse mortgage, they have come into some financial problems and thought that this might help them get through the crunch. I’m going to send a copy of this article to them. It’s very informative and I think just what they need to read.

    1. Hi, Letsret!

      I’m so glad you found my article about reverse mortgages and are sending it along to your client. I’m pleased to know I’m doing some good.

      Thanks for stopping by,

      Gary

  9. I have never owned a home. My husband and I got married a few years ago and have been saving for the down-payment. We are almost there so we decided to look for information online about some mortgage scams and pitfalls and came across your website. Thanks so much for all of the detailed information on reverse mortgages. I never knew it was even possible but now, thanks to you, I’m more knowledgeable and know at least one danger / pitfall for which to be on the look out.

    1. Hi, Reyhana!

      I’m glad you found my article about reverse mortgages helpful. You are wise to be cautious as you consider buying a home.

      All the best,

      Gary

  10. Gary,
    I have gotten several letters on the reverse mortgages. Your article is very eye opening and I learned a lot. I do not need the money, but if I did I would just get loan on the house after reviewing your information.
    I think this is another way for banks to get money from people for doing nothing in return.
    John

    1. Hi, John!

      For a small group of people, reverse mortgages might be helpful. This is why I encourage people considering a reverse mortgage to consult with a lawyer and a financial planner.

      I think you’re right, it’s another way for banks to take.

      All the best,

      Gary

  11. Wow, I learnt something new today. I have never heard of reverse mortgages, and whoever thought of this is pretty clever.

    I was just unclear on one thing. If you take out a reverse Mortgage, do you get a lump sum settlement, or do you get monthly payments. What happens if you don’t get a lump sum and you die two months later?

    1. Hi, Michel!

      Thanks for stopping by.

      Reverse mortgages may be appropriate for a few people, particularly if they are near the end of their life and no heirs. My aunt has a reverse mortgage and for her it makes sense. She’s an 87 year old widow who’s only child does not want her house.

      However, as I mentioned, if someone is considering a reverse mortgage it is advisable to consult with a lawyer and a financial planner.

      To answer your question about the payout. Reverse mortgages can be very flexible to meet the needs of the home owner. Usually, however, the payout is made in monthly payments so the homeowner has an reliable income.

      You raise a good point when you ask what happens if the homeowner/borrower dies prematurely.

      When the homeowner dies, ownership of the home passes to the lender. In a nutshell, the lender is betting that the homeowner dies before all the payments are made and the borrower is betting that they live long enough to get every last dime owed to them.

      I appreciate your comment.

      All the best,

      Gary

  12. What a great article, Gary! We’ve seen a lot of advertisements on the television about reverse mortgages and they’re kind of resonating with my husband as a fallback plan in the future, should one be necessary. I’ve found it difficult to explain exactly what my concerns about them were, so your efforts in outlining exactly how one might unwittingly end up losing one’s home — moving out of it for 12 months, for example — are especially appreciated since losing our home would be devastating. Thanks again!

    1. Hi, Gayle!

      Thanks for stopping by. I’m pleased my article about reverse mortgages was helpful. In most cases a reverse mortgage only makes sense near the end of the homeowner’s life. Even then, it’s important to be cautious and to consult with a real estate attorney and a financial planner.

      All the best,

      Gary

  13. This post has certainly taught me how the society is so materialistic that we have to be aware of the consequences of every single action that we carry out – simply because we don’t know if there are wolves around that will try to trick us into feeding themselves, such as the Big Bad Wolf in the Little Red Riding Hood.

    I feel pain that seniors at their 60+ and older have to still be cautious over every single step that they get. Most of these seniors had experienced the two World Wars and their lives are already full of hardship. Being cheated of their hard-earned property is probably one of the worst things that can befall them at old age.

    Thank you for informing people about the risks and pitfalls in reverse mortgages!

    1. Hi, Rachel!

      I agree completely. Unfortunately, we do live in a materialistic world, at least in the western hemisphere. There are exceptions, but not nearly enough. Another troubling trend is that in some circles stealing from others is considered shrewd business instead of ethical failure.

      I worked with the elderly for five years and I found their biggest concern was not knowing who to trust. In many cases, their own family could not be trusted. Now, that I’m getting older, I value trust and loyalty above all else.

      My mother, who is 86, was nearly scammed a few weeks ago. Fortunately, the bank thought the $500 charge on her credit card was suspicious and did not honor it. It wasn’t a reverse mortgage scam.

      Because of the many scammers in the reverse mortgage industry, I recommend seeking the advice of a lawyer and a financial planner before signing a contract.

      Thanks for stopping by,

      Gary

  14. Hi Garry, your right, reverse mortgages are not for everyone, especially if they are planning to leave their home to any siblings. If they live long enough the loan value will cancel out the value of the property and would be impossible for the siblings to take over the loan.
    If a person is interested in a reverse mortgage they should make sure the lending company requires the individual to take an HECM counseling course to learn about alternatives to reverse mortgages and to make sure they understand the loan. It takes about an hour on the phone with a counselor and is very informative to helping the individual to make an intelligent decision. Thus preventing being scammed.
    Great article for those that are considering a Reverse Mortgage.
    Kim

    1. Hi, Kim!

      Thanks for stopping by. I’m grateful for your insight into reverse mortgages.

      Your comment about the lender insisting that the potential borrower participate in the HECM counseling is pure gold. That alone should protect a borrower from a scammer. Thanks.

      Also, your point of how a reverse mortgage may prevent leaving a home to heirs is an excellent point.

      Thanks again for your valuable contribution.

      All the best,

      Gary

  15. This is a really good article. I’ve always felt there is something unsavory about reverse mortgages and you’ve put all of my fears into words. My parents were approached about potentially taking out a reverse mortgage at one point and asked me for my opinion. I told them absolutely not. I hope that lots of people are able to read your article so that they can understand the dangers of getting into a reverse mortgage.

    1. Hi, Momma Bear!

      Thanks for stopping by. I’m so glad your mother asked your opinion about the reverse mortgage she was considering.

      There is a small percentage of people who might benefit from a reverse mortgage, but not many. In such cases, it is essential to shop around and to consult with a lawyer and a financial planner.

      In most cases, unfortunately, a reverse mortgage is a way for someone to buy a house for pennies on the dollar. Sad to say, when a lender offers a reverse mortgage they are betting that the borrower will die before the lender pays out very much. I don’t see how they sleep at night.

      Thanks for stopping by,

      Gary

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