Reverse Mortages

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.

Eight questions to consider before taking out a reverse mortgage:

  • What will happen to others living in your home after you die or you move out?
    • Who is currently living with you?
    • What will they do when you die or permanently move from the home?
    • Have you discussed this with all those living with you or any family members?
    • Who will pay off the loan, and have you discussed this with them?
    • If your heirs do not have enough money to pay off the loan, the home will pass into foreclosure.
  • Do you know that you can default on a reverse mortgage?
    • Are you contemplating a lump-sum withdrawal?
    • What other resources will you have once you have reached your equity withdrawal limit?
    • Will you have funds to pay for unexpected medical expenses?
    • Will you have the ability to finance alternative living accommodations, such as independent living, assisted living, or a long-term care nursing home?
    • Will you have the ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the mortgage becomes payable?
  • Have you fully explored other options?
    • Alternative financial options for seniors may include, but not be limited to, less costly home equity lines of credit, property tax deferral programs, or governmental aid programs. (See CANHR’s Family Lending Guide)
    • With peer-to-peer lending or other contractual arrangements, you can use your home equity to secure loans from family members, friends, or would-be heirs.
  • Are you intending to use the reverse mortgage to purchase a financial product?
    • The cost of the reverse mortgage loan may exceed any financial gain from any product purchased.
    • Will the financial product you are considering freeze or otherwise tie up your money?
    • There may be high surrender fees, service charges or undisclosed costs on the financial products purchased with the proceeds of a reverse mortgage.
    • Has the sales agent offering the financial product discussed suitability with you, and has the agent given you a written suitability evaluation?
  • Have you considered the impact of an RM on your eligibility for government assistance programs?
    • There are state and federal taxes on the income investments financed through home equity.
    • If you go into a nursing home for an extended period of time, the reverse mortgage loan will become due, the home may be sold, and any proceeds from the sale of the home may make you ineligible for government benefits.
    • If the homeowner is a Medi-Cal beneficiary, a reverse mortgage may stymie the ability to transfer the home, thus, resulting in Medi-Cal recovery.
    • Read CANHR’s Fact Sheet on Treatment of Reverse Mortgages Under the Medi-Cal Program
  • Do you know that if your spouse is not named as a Borrower on the reverse mortgage, he or she has no automatic right to remain in the property after the Borrower dies or permanently moves away from the home?
    • The Non-Borrowing Spouse must be named in the loan document as a “Non-Borrowing Spouse.”
    • The Borrower and Non-Borrowing Spouse had to be legally married when the loan was made and remain married until the death of the Borrower.
    • The Non-Borrowing Spouse has to live in the property at the loan closing and continue to live in the property as their principal residence.
    • he Non-Borrowing Spouse must meet other eligibility rules set by HUD.
  • Do you have an adequate estate plan in place?
    • If  the Borrower becomes incapacitated, the reverse mortgage servicers may not talk to anyone (including the Non-Borrowing Spouse, heirs, or interested parties) unless they have written legal authority to represent the Borrower’s interests.  
    • After the Borrower dies, the reverse mortgage servicers may not talk to anyone who does not have documented ownership rights to the property.
    • The Borrower’s home may end up in probate if disputes arise amongst the heirs, and the Borrower does not have an adequate estate plan.
    • Probate can be very expensive for a Non-Borrowing Spouse, heirs, or beneficiaries.  
  • Do you understand how home improvement projects or voluntary assessment contracts to finance home improvements can increase the risk of a reverse mortgage loan default and foreclosure?
    • Making certain home improvements will add value to your home.
    • Added value from home improvements can increase your property taxes.
    • Financing property improvements through voluntary assessment contracts will increase your property taxes.
    • If the reverse mortgage Borrower cannot keep up with the increased property taxes, he or she will go into a loan default that will result in a foreclosure.

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 Links

CANHR’s Reverse Mortgage Suitability Worksheet

Idoneidad de Hipoteca Reversa Hoja de Auto-Evaluación ("CANHR’s Reverse Mortgage Suitability Worksheet" translated to Spanish)

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.

Examining Faulty Foundations in Today’s Reverse Mortgages

Consumer’s Union and CANHR