Before actually researching reverse mortgages, they may sound like a great deal for seniors hoping to get some money 
out of their homes. But after looking into them, you may want to second guess ever taking out a reverse mortgage on your house.
People who wish to do a reverse mortgage must be at least 62 years old. Depending on which reverse mortgage plan you follow, you could lose a lot of money in the deal. When you take out a reverse mortgage on your home, you are borrowing against whatever your home is worth. This money you are borrowing is not used to pay off your home. Instead, it can be used for things such as medical bills or home improvement. The loan does not have to be paid back until the house is sold, or the owner of the home passes away.
When a reverse mortgage is received from a legitimate vendor, it can really serve a purpose. But many of the vendors of reverse mortgages are fraudulent, or may steer you into a loan that is not right for you. Because reverse mortgages are geared towards senior citizens, it seems like the best way to steal money. Many of these seniors may become confused and not understand what is being offered to them. In the process, they can be tricked into signing away their lives.
If a home owner receives a reverse mortgage, it is very unlikely that the home they loaned against will stay in the family after their passing. Once they pass away, the bank will take the house and sell it in order to recover any of the remaining money from the reverse mortgage. This means that any of the departed’s family cannot receive any money from their house.
This can cause many problems late in life if the loan recipient has to be moved into a nursing home. If their family decides to sell their house, instead of being able to sell it, they will be forced to pay off the entire lump-sum of the reverse mortgage. Doing this may put many families in debt, which means that the loan recipient may not be the only one in trouble because of reverse mortgages.
So in essence, while reverse-mortgages can be helpful when used correctly and obtained from a legitimate vendor, they can be very dangerous if you don’t do your research first. Be careful who you go to, and don’t borrow more than you can pay off if it ever becomes necessary.
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7 users resposed " The Danger of Reverse Mortgages "
August 7 2009
Tisha,
I am one of the reputable, experienced reverse mortgage lenders you spoke of in your article. However, I would rather you not pen articles about subjects in which you have no knowledge. Your article is full of misinformation and errors. Enough to scare anyone from even contacting a reputable and honest firm. You do a diservice to seniors.
Mike
August 8 2009
Tisha,
A RM is intended for a senior on a fixed income to stay at home as long as possible if that is their wish. By using the equity they have earned in their home, they can live the rest of their lives stress-free with a good quality of life and no monthly mortgage payments. You sound like you are more concerned for the relatives losing their inheritance.
Scams can be found everywhere, and that is why there are several protections for the senior doing a RM. One can only hope that the relatives are not among them. Why don’t you provide pointers on how not to be duped instead of creating hysteria and fear. maria
August 9 2009
I’m curious to find out what happens to a reverse mortgage loan, since it is based on the current value of a home, when the property value drops, such as in recent times.
August 9 2009
It is a non-recourse loan. So when/if either the senior or the heirs choose to sell (arms length transaction), they can never owe more than the home is worth. Neither the senior nor the heirs are personally liable for the loan – only that one property stands for the loan. In a down market such as we have now, the bank/lender would be made whole by the FHA insurance premiums paid by the senior.
August 11 2009
Tisha,
with all due respect, if you will not attempt to get your facts correct, you should not report on any issue.
a fha insured reverse mortgage is a non-recourse loan and as maria stated, will not cause any definiciency judgement to be placed against the senior or their estate as long as they kept up with their taxes and insurance and used the property as their primary residence.
i will agree that a reverse mortgage may not be for everyone, but the main danger in your article is the misinformation you provided
August 12 2009
Lots of people owe more than their homes are worth… I’m not sure how anyone can say “they can never owe more than the home is worth”.
October 14 2009
Great Article. A must read for anyone thinking of acquiring a reverse mortgage or whose parents are looking into reverse mortgage. joeb
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