You may have heard about a government-insured mortgage program that allows homeowners over the age of 62 to borrow against their equity. The idea sounds good in theory, take out a loan against the equity already acquired on the home and defer repayment. Reverse mortgage loans are gaining a lot of attention, mostly for the wrong reasons.
Cash Now, Pay Later
The biggest attraction to the reverse mortgage is the fact that the loan does not have to be repaid until the borrower no longer uses the home as their primary residence or fail to meet their mortgage obligations. In other words, until a borrower moves, rents out the house or ends up in foreclosure, they do not have to repay the loan. For many seniors, this quick cash option seemed like a good deal.
The problem is that, in practice, many reverse mortgage holders have ended up in worse financial condition than before they borrowed against their home equity. Many borrowers did not know they would required to pay closing costs on the new loan, money that many simply did not have to begin with.
For those who borrowed the money to get caught up on their debts, the money wasn’t always enough to prevent foreclosure or ending up in bankruptcy. While their financial situation was already suffering, many reverse mortgage holders have found themselves backed into a corner with the additional burden of repaying the loan with interest and delinquency fees.
Even worse is the fact that many big lenders have backed out of the industry, selling off the rights to the mortgages to private entities. With lenders backing out and homeowners lacking the education about reverse mortgage specifics, it is feared that the trend has yet to hit its high point.