Reverse Mortgage Loan Blog

The more something gets used, the more it gets abused.

While reverse mortgages, which emerged less than 20 years ago, rise in popularity, predators pounce on unwitting prey prodded by need or greed to take advantage of the equity in their home.

A reverse mortgage sounds so simple. If you’re 62 years or older, you may qualify.

The process also sounds fairly simple. Find a company that offers reverse mortgages, get your home appraised — only the home you live in can be used for a reverse mortgage — and they’ll let you know how much money you can borrow.

You can take it in a lump sum, monthly payments, or as a line of credit. The loan doesn’t have to be repaid until you sell the house or no longer live in it, either through relocation to another address or your death.

The first thing any legal, financial or tax advisor or consultant with a conscience will tell you is this:

“If you don’t need the money, don’t do it.”

For one thing, the up-front fees are hefty, as high as 10 percent in some cases. So if you qualify for a $150,000 reverse mortgage, you lop $15,000 off it right at the beginning. Interest rates also tend to be higher than conventional home-buyer mortgages.

Charlatans hover around seniors who look like they might be open to improving their fiscal future by exploiting the equity in their home.

The trail left by these crooks is strewn with seniors who were conned into thinking they could not only secure their future but assure their sons and daughters of a much larger estate.

How?

The sales pitch varies.

By getting a reverse mortgage, the homeowner can use the money to buy insurance policies, annuities or whatever else the scammers are selling so they can pocket hefty commissions and transaction and management fees before walking away from the dazed dupe left with a shell of what he or she owned before acquiring the reverse mortgage.

These high-pressure predators point out the reverse-mortgage money can be used to buy a life insurance policy that will benefit your heirs and add a couple of annuities, one of which will pay the insurance premiums and another that will grow into enough money eventually to pay off the reverse mortgage.

Often, the victim is led to believe that an annuity that repays the loan is required as a condition of approval for the reverse mortgage to remove any concern about the lender being repaid.

Bedazzled by such munificent machinations, the victims don’t see how they can lose.

But the devil is in the details and decimal points.

If you are older than 62 and you have a hefty equity in your home and you do need the money, explore reverse mortgages insured by the Federal Housing Administration, which requires the applicant to discuss all the issues with an agency-approved financial counselor before initiating the process.

The session covers such topics as the cost of obtaining a reverse mortgage, avoiding fraud, and financial alternatives. One alternative to consider, for example, is a home-equity loan.

The thing to keep in mind is that a reverse mortgage is not necessarily a vehicle that will take you to Easy Street. It could be just the reverse.

Found here.

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