How to spot a reverse mortgage scam
Reverse mortgages are popular among retirement-age individuals, especially as the cost of living and healthcare continue to increase. Nest eggs aren’t stretching as far as they used to be, as many people are now living longer. A reverse mortgage offers the opportunity for folks 62 years of age or older to breathe a little easier, but it may not be the right choice for everyone.
What Is A Reverse Mortgage?
A reverse mortgage converts part of a home’s equity into cash payments for the homeowner. It also stops any monthly payment from the homeowner to the lender. Essentially, the lender is paying you the equity you have put into your house, while you are still living there.
Reverse mortgages are offered by state and local government agencies, or nonprofit organizations, known as purpose reverse mortgages. They are also available through private loans, referred to as proprietary reverse mortgages, and also as federally-insured home equity conversion mortgages.
Pros And Cons
Many individuals decide on a reverse mortgage when maintaining their home becomes too expensive in retirement. Others may consider it if they need extra cash to supplement social security or have unexpected expenses. Those with a reverse mortgage keep the title to their home and the money received from the equity is usually not taxable.
Though the homeowner is not paying into the mortgage during a reverse mortgage, the loan still has to be repaid eventually. It also gains interest as it sits, making the total amount owed more than it was before. The loan is called in when the homeowner moves or dies, or the home is no longer the principal residence. As the equity is being paid out to the homeowner, there will be less to leave to heirs.
How To Avoid A Scam
When searching for a reverse mortgage, look for a mortgage counselor to help with the process. Don’t reply to any unsolicited advertisements or grandiose claims of free homes or investments. Be wary of uninsured loans and never sign anything you do not understand.
A reverse mortgage isn’t right for everyone, but is a perfectly valid choice for retirees looking for some extra flexibility in their monthly budgets. If you want to learn more, the best place to start is your local bank.