Watching Out For Reverse Mortgage Scams
What is a reverse mortgage?
A reverse mortgage gets its name because it is set up opposite to a traditional mortgage. With a reverse mortgage, the borrower receives home payments rather than making the payments each month. These payments the borrower receives come from the equity they have in their primary residence. To be eligible for this, the borrower must be 62 years old at least.
Some people use a reverse mortgage to supplement their retirement income. These are complex mortgages though, so the marketing for them can lead people into the wrong programs. Borrowers interested in reverse mortgages have to watch out for scams with the following results.
Losing Your Home
One of the main selling points for reverse mortgages is the fact that you can’t lose your home, but you can. Reverse mortgages have to be paid back fully if the borrower fails to pay their taxes and insurance, doesn’t use the home as their primary residence, or the title gets transferred (including adding younger members of the household/family to the title). If any of the situations listed above occur, the mortgage lender can foreclose on the house. So reverse mortgage holders have to keep up to date on any insurance and property taxes, contact the lender about any potential title transfers, and keep the home their primary residence.
Taking a Reverse Mortgage Too Soon
The amount that you can receive from a reverse mortgage depends on how many years past 62 the borrower is, and how much equity they have in their home. The older the borrower is, and the more equity they have increased the amount they can get. However, these loans are often marketed toward those just reaching the eligible age. Getting a reverse mortgage at the age of 62 and spending all the proceeds early on in retirement can reduce resources that you might need later. If this results in an inability to pay your property taxes or insurance payments, you could go into foreclosure.
Reverse Mortgages Are Not Free Money
Reverse mortgages will oftentimes be advertised as if they are free funds, but there are fees associated with this mortgage like any other. Since this loan pays the borrower rather than the other way around, it is common for marketing to focus on that aspect rather than the fees involved. This can get borrowers to unknowingly pay fees that are much higher than normal. Make sure you get a line-by-line breakdown of all the fees before getting a reverse mortgage.