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Reverse Mortgage Ads Can Be Misleading

Published  October 20, 2015 8:28am EDT
Good Day Atlanta
FOX 5 Atlanta

ATLANTA, Ga. - The ads for reverse mortgages often sound too good to be true.  You can’t be turned down. There are no monthly payments required, ever. You get access to equity tied up in your home. And you can stay there forever - with no monthly payments - forever.

Who wouldn’t want to sign up for that?  Here with the answers is real estate expert John Adams.

So what’s so awful about REVERSE MORTGAGES?

John: There is NOTHING inherently “awful” about a reverse mortgage. But it is important to realize that this is a LOAN like any other mortgage, and if you fail to meet the terms of the loan, you can and will LOSE YOUR HOUSE to FORECLOSURE.

A Recent study by the CONSUMER FINANCIAL PROTECTION BUREAU found that many ads for Reverse Mortgages were misleading, and that many consumers thought these products were, in fact, a government benefit for seniors, rather than a true mortgage loan.

FACTS:

1.  Under a REVERSE MORTGAGE, you borrow a portion of the EQUITY in your home, and decide how to spend the money however you choose.

2.  Any money you borrow is secured by your house, just like any other home loan.

3.  You are charged interest on the outstanding balance, just like any other home loan.

4.  And just like any other home loan, your home is collateral for the loan balance.

Why is that a surprise?

John: Because of the nature of a REVERSE MORTGAGE:

1.  It’s for seniors who own their home free and clear of any debts.

2.  You don’t have to qualify because the loan is secured by the equity in your home.

3.  There are no required monthly payments.

4.  You can stay in your home with no monthly payments for as long as you live there.

5.  When you relocate (or pass away), the loan (plus all the accumulated interest) becomes due. It is assumed that the house will then be sold to pay off the loan.

6.  The loan has HIGH upfront costs and a relatively HIGH interest rate, compared to a convention home equity loan.

So what’s your advice?

John: 

1.  MAKE SURE YOU UNDERSTAND ALL THE DETAILS before you commit to a reverse mortgage.

2.  Know that there is ALMOST ALWAYS a less expensive option.

3.  Consider a reverse mortgage as a POOR LAST RESORT if you need money and can’t find any other way to get it.

THE BOTTOM LINE: A Reverse Mortgage is not a government benefit for seniors. It is just like a HOME EQUITY LOAN that requires no payments until you move or pass away. You can probably find a better alternative.