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Reverse mortgages provide income or a line of credit to homeowners who are 62 or older by allowing them to tap their home equity. The Federal Housing Administration insures 90 percent of the reverse mortgages known as Home Equity Conversion Mortgages, or HECMs. These mortgages do not require repayment until the homeowner dies, permanently moves, or fails to maintain the property or pay property tax. Remaining equity belongs to the borrower or the borrower's heirs.
While these loans make sense in some cases, consumers should clearly understand their responsibilities and risks.
Some of the risks include:
• Deceptive and misleading marketing – The complexity of these products and incentives for some brokers can lead to marketing practices that emphasize making the loan rather than ensuring it is appropriate for the borrower.
• Conditioning the availability of a reverse mortgage on the purchase of other financial products – Because reverse mortgages often involve large lump sum payments, borrowers can be vulnerable to coercive sales of expensive annuities or long-term care insurance that can be expensive and may not meet borrower needs.
• High fees – Large lump sum payments can also encourage borrowers to overlook substantial fees.
• Property taxes and Homeowners Insurance – You may want to establish an escrow account to provide for property taxes and insurance. Failure to pay property taxes and maintain homeowners insurance can result in foreclosure, so it is important to ensure these responsibilities are covered.
While these loans make sense in some cases, consumers should clearly understand their responsibilities and risks.
Some of the risks include:
• Deceptive and misleading marketing – The complexity of these products and incentives for some brokers can lead to marketing practices that emphasize making the loan rather than ensuring it is appropriate for the borrower.
• Conditioning the availability of a reverse mortgage on the purchase of other financial products – Because reverse mortgages often involve large lump sum payments, borrowers can be vulnerable to coercive sales of expensive annuities or long-term care insurance that can be expensive and may not meet borrower needs.
• High fees – Large lump sum payments can also encourage borrowers to overlook substantial fees.
• Property taxes and Homeowners Insurance – You may want to establish an escrow account to provide for property taxes and insurance. Failure to pay property taxes and maintain homeowners insurance can result in foreclosure, so it is important to ensure these responsibilities are covered.