Should You Get a Reverse Mortgage?

Have you ever heard of a reverse mortgage?

A reverse mortgage is a type of mortgage/home loan that gives older homeowners, older than 62, access to the equity in their home.  A reverse mortgage also allows the homeowner to defer loan payments until they sell their home or, ultimately, until they pass away.  With a reverse mortgage, the homeowner is not required to make monthly payments, but the homeowner is required to continue paying their property tax and the homeowner’s insurance premiums.

Reverse Mortgage Problems

The problem with reverse mortgages is understanding how they work.  Homeowners who often qualify for a reverse mortgage will get one, but aren’t aware that the loan balance will increase over time.  Unfortunately, too many homeowners find out about this later on and it becomes a big problem.

The other problem with reverse mortgages is that they have high costs and fees, when compared to traditional loans.

Foreclosure on Reverse Mortgages

One statistic that I have seen a few times is that approximately 10% of homeowners with a reverse mortgage are at risk of foreclosure because they have not paid their property taxes and/or homeowner’s insurance.

Reverse Mortgage Borrower Beware

What I dislike the most about reverse mortgages is that the high fees mean that lenders push this product hard!  And, to make it worse, most homeowners don’t understand that they can be foreclosed on for not paying their property taxes and homeowner’s insurance ( it is a clause in the trust deed).

Reverse mortgages are complicated.

Many senior citizens who own homes don’t understand that over the life of the loan, the loan balance increases and their equity decreases!  This is not what we want to see in homeownership!  I urge you to make sure that you understand the loan you are getting.  A reverse mortgage has a lot of negatives, so make sure you consider your other options before getting one.  There are always multiple solutions to a problem!

Photo Credit:  The Three Sisters