That title grabbed your attention! Today, I want to write about reverse mortgages. This month the AARP bulletin has an excellent article. If you are an AARP member please read the article on line or through an audible source. The idea behind a reverse mortgage is good. Ideally, seniors have a paid off home, need money to remain in the home or to supplement their income. In that case, the mortgage is used to tap a percentage of the equity in the home. Unfortunately, the loans have several stipulations. Reverse mortgages are often a loan of last resort for older retires who worry about outliving their savings. To qualify, borrowers must be 62, own their home outright or carry a mortgage small enough to be paid off with the proceeds. There are no income or credit qualifications but the owner remains responsible for annual taxes, property insurance and maintenance. The loan doesn't have to be repaid until the owner moves or dies. This is where the potential problems start. Remember, all of us are one health event from long term care and most of us can't afford private in home health services.
The loans when handled by reputable lenders provide credit counseling through HUD. However, 1 in 10 of the reverse mortgages are in default. What happened? Many people took out the loans in a lump sum, relied on the money to meet basic living expenses, used up the equity and had nothing left to pay the mandatory expenses. Another problem is the astronomical fees associated with the origination of these loans. Currently origination fees average $10,000. Solution: HUD is tightening the program which may make it less appealing. Borrowers will no longer be able to take lump sum payout. Money will be placed in escrow to meet taxes and insurance for future years.
A major concern remains the deceptive advertising practices. If you are considering a reverse mortgage be sure you have shopped around. This can be a good tool but it needs to be a part of your overall retirement plan, not a reaction to a crisis.
Share a smile!
Until tomorrow,
Dr. Janet
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