Reverse Mortgages

While being a legitimate investment product, reverse mortgages pose a significant risk to seniors. According to the Department of Housing and Urban Development in 2012, 57,000 seniors were in danger of losing their homes. The foreclosure rate for reverse mortgages was four times higher than for traditional mortgages. California had the most reverse mortgages in 2012. Texas and Florida followed respectively.

Celebrities in television commercials encourage vulnerable seniors to turn the equity in their homes into cash. Seniors are told to use the money for vacations or other ‘well deserved’ spending. These commercials do not explain the high costs, fees, and risks of foreclosure.

It is estimated that 70% of seniors receive a lump sum payout from the reverse mortgage company for the equity in their home. Most often the money is spent by the time it is truly needed for health care costs and major home repairs. There are severe hardships that can occur when a senior has no money for personal care and is ‘trapped’ in his / her home due to a reverse mortgage obligation.

To protect yourself:

• Understand that a reverse mortgage poses a significant risk to your financial well being
• Plan for future cash needs for health care
• Plan for future cash needs for home repairs, insurance and taxes
• Investigate alternatives such as traditional home mortgages and home equity lines of credit.