A reverse mortgage is a type of loan that allows homeowners aged 62 and older to borrow against the equity in their homes. The loan is typically distributed as a lump sum, line of credit, or stream of payments -- and will become due with interest when the borrower dies or permanently moves out of the home. Reverse mortgages are often pitched as “easy money,” but beware: these loans are expensive and can result in default and foreclosure if the borrower cannot stay current on property taxes, insurance and home maintenance.
Five questions to consider before taking out a revetrtgage:
- What will happen to others living in your home after you die or you move out?
- Who is currently living with you?
- Where will your loved ones live once the reverse mortgage becomes due?
- Do you know that you can default on a reverse mortgage?
- Will you have funds to keep up with taxes, insurance and home maintenance?
- What will you do once you’ve reached your equity withdrawal limit?
- National default rate for RMs was at 9.4% in 2012, more than twice that of traditional mortgage loans.
- Have you fully explored other options?
- Have you looked into less costly home equity lines of credit or considered family lending plans? (See CANHR’s Family Lending Guide)
- Are you intending to use the reverse mortgage to purchase a financial product?
- Who is selling you the financial product, and what are the commission rates, surrender fees, and services charges associated with the product you’re considering?
- Will the compounding debt of a RM outpace the rate of interest generated by any financial product?
- How liquid is the financial product you’re considering?
- Have you considered the impact of an RM on your eligibility for government assistance programs?
- Read CANHR’s Fact Sheet on Treatment of Reverse Mortgages Under the Medi-Cal Program
Where to Report Reverse Mortgage Fraud:
Complaints about Mortgage Lenders and Brokers: If you believe that a real estate professional has committed fraud having to do with your reverse mortgage, file a complaint with the California Department of Real Estate at http://www.dre.ca.gov/consumers/WhoDoYouCall.html and the Federal Trade Commission online or by phone, toll–free, at 1–877–FTC–HELP.
Consumer Financial Protection Bureau (CFPB): Consumers can submit a complaint with the CFPB about reverse mortgages through the web at consumerfinance.gov , by phone at 1-855-411-CFPB or TTY/TDD (855) 729- 2372, or by mail.
Office of the California Attorney General: https://oag.ca.gov/contact/consumer-complaint-against-business-or-company
Helpful Reverse Mortgage LinksCANHR’s Reverse Mortgage Suitability Worksheet Family Equity Lending Guide Home Equity Protection Webinar presented by Prescott Cole, Esq. The Consumer Financial Protection Bureau (CFPB)
The CFPB has questions and answers about reverse mortgages at Ask CFPB.
The CFPB also has developed a consumer guide for older Americans with key facts on reverse mortgages.Keep Your Home California
A free service administered by the California Housing Finance Agency, to help low-income homeowners stay in their homes. Their Reverse Mortgage Assistance Pilot Program provides financial assistance to senior homeowners who are in danger of losing their home due to defaulting on an existing RM.