We’ve all seen the commercials, the 60’s Heart Throb on TV touting how safe and great a reverse mortgage is for those in their elder years. And for those who are older and were hurt in the “Great Recession” this may look like a great option to have a little extra money for travel, fixing up the house, or just to pay medical bills. After all, why not use some of the equity in your home while you are still around to enjoy it?
Sound too good to be true? Or do your Spidey senses tingle when you see those commercials, but you’re not sure why? Then read on! But I’m not eligible for one, you say, but your parents and/or grand parents are! Wouldn’t it feel good to be able to steer them in the right direction? Good answer!
In case you have not heard of a reverse mortgage, or not fully sure what it is, it’s basically a series of cash advances secured by your home, capped by the value of the home, that you don’t have to pay back until you vacate the home (either by moving out or dying). To qualify for one you must be at least 62 years old and have enough equity in the home to cover the amount to be borrowed.
You might be thinking that this is a great idea; borrow money and never have to pay it back! You could use the money to travel, boost your life style, or do some home repairs/upgrades, right? Sounds too good to be true, and you know what they say about that?
Did you know:
- That if the mortgage isn’t done correctly, a surviving spouse may have to pay back the loan or face foreclosure?
- That the closing costs can be several thousand dollars?
- That if you become delinquent on your insurance or property tax that the lender could call the loan (demand repayment immediately)? (if you couldn’t pay your taxes, you for sure can’t pay the loan and WILL loose it)
- That the housing market is not always an upward trend, and that if the value of your home falls the lender could stop payments that you started to rely on?
- That if the home value drops (while your equity is dropping faster) and you want to move, you may not be able to afford to sell your home due to being upside-down on the loan?
- The reverse mortgage industry is full of scam artists, so it’s possible your trusting grandma may fall for one.
Still sound like a good plan?
“But,” you say, “I’ll stay in this house till I die, so will my spouse, I’ve got a good pension that will more than cover taxes and insurance, and I’ll just use ‘my equity’ for fun stuff and not rely on it for meeting my needs.” That may be true and you and your spouse may never have to deal with any of the big negatives; but what about your heirs? Did you want to leave them the family home? They may be forced to sell it to pay back your debt when you paid on it for years and years hoping to leave a legacy.
They may not all be scams, but they are for sure not a good option! If you are having trouble making ends meet, please talk with me, or any other financial coach, before making what could be a very costly mistake.
