Reverse Mortgages Climbing, So Are Scams

Many of us are aging and finding that has affected our savings, investments, and income, and is putting pressure on our daily living expenses. Should you use your home’s equity to pay those bills?

When you buy a home, most people get a loan. Later in life, you may have paid off the mortgage on your home or have substantial equity in the home with a small mortgage balance. This equity has value and can be used in various ways to help pay unexpected or regular expenses.
Reverse Mortgages

The reverse mortgage is not a new financing tool. It is said that they were first used 50 years ago.

Before applying for a reverse mortgage, the most popular is the federally insured Home Equity Conversion Mortgage (HECM), you should do your homework or spend some time with an independent financial counselor to determine which plan (there are several) is best for your situation. American Association of Retired Persons (AARP) and other reputable organizations also provide information and services that can be of value in making this decision.

A reverse mortgage allows you to use your home's equity as security for an equity line of credit—an increasing mortgage, but have no payments with a rate of interest usually lower than using other types of financing. Sounds great doesn’t it!

There are several major drawbacks to this type of mortgage. Like mortgage loans used to buy a home, reverse mortgages are also very costly. This is an area that should be carefully investigated. There are also limits to how much equity you can use, depending on interest rates, your age, and how much money you need during the early years of the mortgage.

All interest and principle is payable when the borrower(s) deceases or is no longer living in the home. Make sure to review with your tax preparer any regulations that may affect your ability to use this type of mortgage.

The current median age for people using these reverse mortgages is around 74 years according to a report from AARP.

Before the recent collapse of the mortgage market, new reverse mortgage originations were growing in number annually. FHA has continued to insure these mortgages to make them attractive to those companies that buy them. Fannie Mae (Federal National Mortgage Corporation), the mortgage giant was the main purchaser of these mortgages, but its future remains unclear. This may affect interest rates as well as other factors.

Mortgage rates are currently low and provide an excellent opportunity for this type of mortgage.
Reverse Mortgage Scams Are Increasing

Many homeowners over age 62 are vulnerable to reverse mortgage scams because they do not understand all the factors involved in this type of transaction. This has become an area of concern for regulators.

Many low-cost federally insured HECM providers are city and state governments. Many banks and other providers of these loans are also very reputable, but there are companies or representatives that take advantage of unknowing customers.

The FBI reports that there are numerous scams by “unscrupulous professionals” to take advantage of people. Read the FBI/HUD report to the public on this matter.

Reverse mortgages are not for everyone. Each family’s situation is different. Become informed and consider carefully all alternatives before proceeding.

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