Are reverse mortgages a smart way to enjoy your golden years or a scheme to line the pockets of unscrupulous companies?
Some senior citizens have found the latter to be true, which is reason enough to arm yourself with more information on the topic.
Reverse mortgages allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or pass away.
The number of these loans continue to decline, but the rate of default is at a record high 9.4 percent, according to the Consumer Financial Protection Bureau. And the default is attributed, in some cases, to dishonest lending practices.
Know the ins and outs of reverse mortgages and their potential impact on your finances before deciding whether or not to pursue one.
Reverse mortgages are low-interest, federally regulated loans that allow senior homeowners to convert a portion of the value of their home into tax-free cash.
Seniors can opt for a lump sum payment, monthly payments, a line of credit or a customized plan to fit their needs.
Although reverse mortgages require no monthly payments, they still leave the homeowner responsible to maintain the home, pay real estate property taxes and carry homeowners insurance for the life of the loan.
Some lenders who offer reverse-mortgages attach fees to them that many seniors find difficult to take on. Some offer false hope of financial freedom without explaining the risks.
Others leave widows without a home after pressuring them to leave their name off the deed—only to face foreclosure after their spouse passes away.
Don’t Be Wooed
Some unscrupulous lenders are swaying seniors into risky mortgage deals through persuasion. Be on the lookout for deceptive sales pitches and high-pressure tactics.
If you are considering a reverse mortgage and feel pressured by your lender to take prompt action, step back and consult with a housing specialist. These professionals, as well as regulators and elder-care advocates, can help walk you through your options.
It's always best to make major financial decisions at a slow, thoughtful pace. If you feel pressured to make a quick decision, that's a bad sign.