Are reverse mortgages a good thing?
Reverse mortgages have gotten a lot of buzz over the past 6 years or so, but are reverse mortgages a good thing?
First of all, to answer that question, you need to know exactly what a reverse mortgage is. A reverse mortgage is a home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can then be paid to you.
Sounds great, right?
Well, maybe not.
There’s the little matter of paying this money back. You see, it’s not truly the reverse of traditional mortgage. If it were, you would “loan” the bank your equity stake in the home in exchange for monthly payments to you until that equity “loan” was paid off. At that time, the bank would lay claim to the full value of the home. But in a reverse mortgage, you get to live in the home as long as you can make tax and insurance payments on the home. When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
There are literally hundreds of disreputable individuals and companies who use reverse mortgages as a scam. They load them up with so many fees, that you really end up with very little left in payments and you or your heirs may even owe more once the home is sold!
One such company, Financial Freedom Senior Funding Corporation, was hit by a lawsuit for their hard-sell tactics. The suit essentially alleges that they scammed seniors out of their homes and equity, pushing them to use the money for the “special things you’ve always wanted to do, such as travel or hobbies.” Financial Freedom Senior Funding Corp. also encouraged seniors to take out the maximum allowed under the law, regardless if it was wise, and even engaged insurance agents to sell insurance products on top of the reverse mortgage, tacking on more fees.
Despite this, the company sports a rating of C from the BBB and has 0 complaints in the past 36 months.
It sounds like reverse mortgages are not such a good deal. I suppose they would be for seniors who have no heirs and don’t plan on ever selling their home, but that may not be the most responsible thing to do.
For more info on Reverse Mortgages, head over to the U.S. Department of Housing and Urban Development website.
Photo by docsplatter
Related Posts Related Websites
i think at current mortgage reate it will be a good deal…
I really don’t think that reverse mortgages are a good deal.
I really don’t think that reverse mortgages can be a good deal.
In order to determine if a reverse mortgage is a good deal for you, in your own personal circumstances, you should consider consulting with an attorney who is experienced with this subject. That is why the American Academy of Estate Planning Attorneys (AAEPA) breaks Law Practice Management Systems for estate planning attorneys into a variety of areas as outlined in the Academy’s “Practice Building Handbook” which is an important cornerstone in the creation of law firm business plans.
Is a reverse mort a good idea want if you plan on only living in your house for 5years or the value of the house verse what you own has gone down by 50%???
Like all financical commitments, a Reverse Mortgage should be reviewed carefully. If funds are needed all options should be compared. First and foremost is determining whether staying in your home is long term or is selling a better option. Another comparison is a home equity loan. It is cheaper and quicker, but downside is having to qualify for the loan and additional monthly expense. If staying in home long term is important and current monthly income will not support extra debt payment, then by all means do the research of aspects and cost of a reverse mortgage.
The reason a reverse mortgage scares me is because they are heavily promoted on TV by older actors.
In order for a reverse mortgage to be good for any senior they must first have a genuine need. Next you must realize you are completely responsible for understanding the consequences for your personal, financial and health circumstances, short and long term need. If you are one of the 83% of folks who take a lump sum payment you also muc create a financial plan for the rest of your life how you will spend the proceeds of the reverse mortgage and where the money will come from to pay your property taxes, insurance, maintenance of your home to the lenders standard, your living expenses, health expenses, etc. And please don’t think “government approved” counseling will provide you with the legal, financial and tax advice to know if this is the right product for you. You are 100% at risk of losing your home, equity and quality of life. There should be a disclaimer just like the pharmaceutical companies something like this ‘the benefits advertized may not apply to you. You could lose your home, equity and quality of life. You could be homeless and helpless. You may not qualify for social service or aid programs.”
My parents were painted a romantic picture of a reverse mortgage and did not consult my siblings or I on the decision to get one. However we have been named as “contacts” per Financial Freedom rep when they pass on their reverse mortgage. I never gave permission to be named as a contact. I want out. What do I do?!
I just stumbled upon this site and read Maribel’s comment. To respond, you could contact Financial Freedom and have your name taken off as a contact. However, the headaches ahead of you when your parents are no longer living in their home and the reverse mortgage becomes due and payable should be of great concern to any adult child who’s parents have taken out a reverse mortgage. We have a special section in our book, which can be read free on our site. It’s called “Prevent Your Families Shock and Harm.” This might help to understand what you are up against. The exact web address is: http://www.reversemortgagecritic.com/heirs_U3.html
Best of luck.
REVERSE MORTGAGES ARE A SCAM!! THEY ARE LIKE BEING TOLD YOU ARE APPROVED FOR A CREDIT CARD WITH A BIG LINE OF CREDIT. EXCEPT WHEN YO READ THE FINE PRINT, YOUR INTEREST RATE IS 29%.
IF YOU NEED MONEY, IT IS ALWAYS BETTER TO SIMPLY DO A HELOC ON YOUR HOUSE. NEVER DO A REVERSE MORTGAGE.
I SHOULD KNOW, I USED TO SELL THEM.
Where can I find a list of government approved companies for reverse morgages