How to Protect Yourself: Reverse Mortgages

How to Protect Yourself: Reverse Mortgages

A reverse mortgage allows consumers 62 or older to supplement their income by converting home equity into cash. While reverse mortgages may sound like a great deal, they are not suitable for everyone. Consider the following before deciding to take out a reverse mortgage on your home:

Understand how reverse mortgages work.

A reverse mortgage converts the home’s equity into cash payments to the homeowner. You keep title to the home but borrow against its equity. The money received from the lender usually comes in the form of monthly payments or a lump sum and is generally tax-free. The loan does not have to be paid back as long as you live in the home. However, the loan will become due when you die, fail to pay taxes or insurance for the home, let the home fall into disrepair, or sell the home or no longer use the home as your primary residence. The lender cannot sue you or your estate for the loan balance, but it can sell the home. Never let a lender pressure or rush you through the process. Be sure you understand the features and total cost of a reverse mortgage before signing anything.

Keep your heirs informed.

When the last surviving borrower dies, sells the home or primarily lives elsewhere, the loan will become due. This means should your heirs wish to retain the home, they will need to pay the lesser of the loan balance including interest and fees or 95% of the fair market value of the home .

Know the costs involved.

There are additional fees and costs associated with acquiring a reverse mortgage. There are generally closing costs and servicing fees. Some lenders may also charge mortgage insurance premiums. Interest will accrue each month, increasing the amount owed over time. Be sure to compare fees and costs with other lenders to determine which will offer the best deal. Shopping for a reverse mortgage from several lenders will keep your costs as low as possible.

Be sure to pay property taxes and insure the property.

Know that you must pay property taxes, carry homeowner’s insurance and maintain the condition of the home; otherwise the loan may become due. Once the loan is due, the lender may seek to foreclose on the property.

Contact a non-profit housing counselor.

Help and information is available to you free of cost. The HOPE NOW alliance provides a 24-hour hotline to provide mortgage counseling assistance in multiple languages at 1-888-995-HOPE. You may also obtain a list of HUD Approved Counseling Agencies in Florida at www.hud.gov under the “Resources” tab or by calling toll-free at 1-800-569-4287.

File a complaint.

If you wish to file a complaint against your mortgage servicer or lender with the Attorney General’s Office, please do so online at www.MyFloridaLegal.comor toll-free at 1-866-9-NO-SCAM. Additionally, if you wish to file a complaint against a mortgage servicer or lender with the state Office of Financial Regulation, you may do so online at www.flofr.com.

The Consumer Financial Protection Bureau (CFPB), a federal agency tasked with reviewing complaints about mortgages, credit cards and other consumer financial products and services, also collects complaints on mortgage servicers and lenders. For more information or to file a complaint, visit www.consumerfinance.gov or call toll-free at 1-855-411-2372.

You may also file a complaint with the Florida Department of Agriculture and Consumer Services, which acts as the State's consumer complaint clearinghouse, at www.floridaconsumerhelp.com.