Reverse Mortgages: Too Good To Be True?

Colin Grubb    Feb 13, 2017
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Hi, my name is Colin and I’ve been researching Reverse Mortgages on behalf of ConsumersAdvocate.org for well over a year now. If you’re 62 or older and you own your house, read on because what I’ve learned may surprise you.

When I mentioned to my mother that I was researching Reverse Mortgages, she replied quickly…

“Aren’t those things a scam?!” Short answer: no!

I recently ran across the website of a Professor Emeritus of Finance at the Wharton School of Business. He explained that a lot of the reason reverse mortgages had a bad name was due to a technicality regarding the use of the word “foreclosure.”

Through his articles, I learned that eviction almost never happens, and reverse mortgages are a perfectly safe and financially sound strategy for seniors who own their homes to get access to extra cash.   

A reverse mortgage converts equity in your home into cash. You can receive a large sum all at once, establish a line of credit to draw on as you please, or get paid in monthly installments. If you wish you can pay it back the same as you would any loan.

You could also elect to not pay it back. And if you have chosen monthly disbursements, you could continue to collect those for the rest of your life! The loan comes due when you die or leave the house. As long as you remain on the property and fulfill a few basic obligations you are not required to pay.

You Are Not Required to Pay it Back.

When you pass on or leave the house, if you have no heirs (or your heirs do not wish to keep the house), the house is sold to pay off the loan. And if the loan balance is higher than the house’s worth the US Government actually covers it through the FHA.

You see, bundled into the reverse mortgage is a yearly 1.25% insurance fee. Because of this fee, every reverse mortgage is federally insured. The FHA reimburses the lender if the house is underwater.

Reverse Mortgages Are Insured by the Federal Housing Administration

If your heirs do wish to keep the house, they have several options open to them.

Bottom line: Depending on what kind of cash disbursement you want, we recommend two of our advertising partners for reverse mortgages. AAG is best if you want to get the largest credit line you can in the future (but maybe not draw all of it right now). All Reverse Mortgage is the best if you want to draw as much as possible right now because of their “no closing cost” option.