Reverse mortgages: New push, same old problems
Despite happy talk and new products, they're a last resort for seniors.
This post comes from Marilyn Lewis of MSN Money.
Reverse mortgages, once thought to be a bad move for seniors, appear to be losing some of their stink.
Why? A couple things have changed:
- Congress has been loosening the rules to let seniors pull more money out of their homes (read here about loan limits changing).
- The mortgage industry is flogging a bunch of new reverse mortgages with reduced fees, bigger payouts and looser requirements. “The hottest mortgages? They pay you” says:
The product is evolving from meeting basic needs to fulfilling the desires of a new generation of retirees, from funding a vacation getaway or recreational vehicle to renting a Paris pied-à-terre.
Uh oh. Isn’t this the same industry that’s still suffering mightily from its crazy lending excesses during the housing boom?
- Bing: The worst mortgage
Yep. And now salespeople are hyperventilating about reverse mortgages in much the way they did those zero-doc-no-interest-we-pay-you mortgages a few years back. But what’s good for the mortgage industry isn’t necessarily good for the rest of us.
Homeowners age 62 (and some 60-year-olds now are eligible) are a big, tempting, untapped market -- if only they can be convinced to play.
The obstacle for the industry: Presently, most homeowners go to the grave clutching the deeds to their homes. Only 2% of those eligible buy a reverse mortgage.
So, what to think? Are reverse mortgages a good thing or a bad thing? They’re neither. They’re complex products that even financial experts can have trouble understanding. (“Reverse mortgages: A wise idea?” lays out the pros and cons.)
In the Los Angeles Times, mortgage expert Keith Harney says:
When properly understood by seniors and underwritten responsibly by lenders, reverse mortgages can provide money to supplement retirement income, pay for uninsured medical expenses and keep homes in good repair.
So, maybe good under the right circumstances. But unscrupulous lenders:
- Pressure customers to buy other, unnecessary products.
- Fail to reveal risks and downsides. For example, a reverse mortgage payout could make you ineligible for some kinds of government help; and if you have to leave your home for a time -- to get nursing home care temporarily, for instance -- you might lose the house.
- Fail to tell buyers that they’re responsible for paying property taxes and insurance.
And then there are the misleading ads that say reverse mortgages are “federally insured.” Yeah, they’re federally insured -- but for the lender, not for you.
Save reverse mortgages as your Hail Mary -- a last resort (Forbes tells why). If you’re in financial trouble, try better, cheaper approaches first: Put the house on the market; take in a renter; sell the house to your kids who can rent it back to you; borrow money from family; get an equity line of credit.
And, no matter what kind of a brainiac you are, on this subject get expert guidance from a nonprofit agency. Salespeople don’t count. Find experts through the National Foundation for Credit Counseling or use this map to locate HUD-approved housing counseling agencies near you.
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