by Bayview Hunters Point Community Legal
These days many seniors find themselves without enough to make ends meet. Then you turn on the TV and hear Robert Wagner, Pat Boone, Alex Trebek, Fred Thompson and even “Fonzie” telling us about the easy money provided by reverse mortgages. A reverse mortgage is a loan for senior homeowners, age 62 and older, that uses the home’s equity as collateral. The loan generally does not have to be repaid until the borrowers move out of the property or pass away.
You may think that if these celebrities stand behind reverse mortgages, the loans are OK. Look out: Reverse mortgages can be very dangerous. Loan brokers often target senior homeowners in minority communities who have low mortgages.
Reverse mortgages can be very dangerous. Loan brokers often target senior homeowners in minority communities who have low mortgages.
They smile and make the loan sound so good that you think you can’t pass it up. They tell you that you can put your home equity to work and that you should get some of the money you deserve. But, they may not be telling you the whole truth. Know the facts before you consider a reverse mortgage or you could end up without a home.
Facts about reverse mortgages
If you get a reverse mortgage you will not have to make monthly payments to the bank, but the bank expects to be paid back. If you or your heirs cannot repay the loan, including high costs, fees and interest YOU WILL LOSE THE HOME.
YOU MUST LIVE IN THE HOME. That may be easy now. What happens if you fall and break your hip? You are in the hospital for a few weeks and then go to a rehab facility. If you are away from your home for a period as brief as one month, THE BANK MAY FORECLOSE.
YOU MUST CONTINUE TO PAY TAXES, INSURANCE AND UPKEEP. Don’t think that you can get money out of your home and forget about making those payments. You are still responsible for the taxes and insurance on the property and for maintaining the property. That’s a monthly expense you need to think about before you get any reverse mortgage money and spend it. If you don’t pay the taxes and insurance and keep up with repairs, THE BANK CAN FORECLOSE AND PUT YOU OUT.
THE FEDERAL GOVERNMENT INSURES REVERSE MORTGAGES FOR THE BENEFIT OF THE BANK. The insurance pays the bank if the house goes into foreclosure and the sale of the property doesn’t cover your debt. The homeowner pays for the insurance, but the bank gets any insurance money.
REVERSE MORTGAGES MAY BE MORE EXPENSIVE THAN OTHER OPTIONS. The actors who sell these loans on TV promise easy qualifying and quick money, but these loans are expensive. A reverse mortgage is a loan and like any loan it carries fees and interest. The fees and interest on reverse mortgages are very high and will eat into the money you can get. Finally, after you pass away, if your heirs can’t repay the loan, fees and high interest, THE HOME YOU WORKED SO HARD TO KEEP WILL BE SOLD BY THE BANK.
As a senior, you have common sense and years of experience. Use that common sense when considering a reverse mortgage.
- Do you need the money for something essential? Money for vacations, a fancy kitchen or kids and grandkids with their hands out is not essential. If you use up your home equity, it may not be there when you really need it.
- Discuss the prospect of taking a loan with someone you trust.
- Take your time. Be suspicious if you are being hustled to make a quick decision. If it’s real, it will keep.
- If you have a financial need, look for ways other than a reverse mortgage to deal with the circumstances. There are less expensive alternatives, such as an equity line of credit.
Finally, the FBI reports that seniors who own their own homes are often the victims of financial fraud. Be suspicious if the loan broker who is offering a reverse mortgage asks you to sign papers you do not understand, asks you to give him or her power of attorney, talks about investments or suggests that he or she will find a contractor to make repairs to the property.
If you already have a reverse mortgage and have questions, you can consult with a lawyer for free. Please contact Bayview Hunters Point Community Legal, 4622 Third St., San Francisco, CA 94124, 415-735-4124, firstname.lastname@example.org.
To learn about more ways to tap your home equity, read “Reverse Mortgages and Their Alternatives” and “Home Made Money: A Consumer’s Guide to Reverse Mortgages.”