Reverse Mortgages

Reverse Mortgages — Boon Or Boondoggle: Boca Raton, Florida, Investment and Securities Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

The following is a post that we published a while ago discussing the benefits and risks associated with reverse mortgages. It is something that you might want to share with your clients who might be considering the same.

If you are approaching retirement age, and own your home, chances are you have heard about reverse mortgages — or will soon. Reverse mortgages can be helpful to homeowners who want to stay in their homes but are having trouble keeping up with their mortgage payments, or who have no other source of funds to pay bills or meet unexpected expenses. This is something that I recently was exposed to when I assisted my aunt in obtaining one, and I can tell you that it is important to deal with a mortgage broker who is schooled in these types of mortgages because the hoops that the homeowner has to go through to obtain a reverse mortgage, especially if it is coming from private investors, are substantial. But not a night goes by where I do not see an advertisement for a reverse mortgage as an easy, cost-free way for retirees to finance lifestyles. In the investment arena, unscrupulous “financial advisers” tout reverse mortgages as a way to obtain capital to invest in “can’t lose” investments so that seniors can secure their financial futures.

The first question that you have to ask yourself is what is a reverse mortgage and how does it work.

Older homeowners who want to access the equity in their homes usually have three options. They can sell their house and downsize, take out a home equity loan, or consider a reverse mortgage. A reverse mortgage is an interest-bearing loan secured by the equity in your home. To be eligible, you and any other co-borrowers, such as your spouse, must own your home and be 62 or older — although some lenders offer reverse mortgages to individuals as young as age 60.

Like a home equity loan, a reverse mortgage allows you to convert your home equity to cash that you can use for any purpose. Unlike other home loans, however, homeowners make no interest or principal payments during the life of loan. The interest is added to the principal, which is why reverse mortgages are often called “rising debt” loans. Unless you opt for a fixed-term loan, the loan only becomes due when you die, sell your home to move or otherwise leave your home for more than 12 months-for instance, if a health issue requires you to enter a nursing home.

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