Frequently Asked Questions
How to avoid reverse mortgage scams
There are a few types of scams that can relate to Reverse mortgages. These scams can come from companies or individuals. There are house flipping scams, equity theft, and foreclosure scams. Relatives or other personal advisors, like financial planners, may convince you to get a Reverse mortgage when you don’t actually need one then pocket the money.
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Fortunately, there are things you can pay attention to and do that will help you avoid any Reverse mortgage, or other home loan scams.
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Do your research: Before trusting a lender or banker who is offering to secure you a home loan, look them up. Check out their online presence, their social media, their website, and read reviews. Find out if they've helped other seniors like you. Verify them wherever possible using websites like the Better Business Bureau. Find out if they have a reputation as a dependable business, verify their business status, make sure they have a license, and if something feels off, trust your gut and find a different lender. It is also a good idea to research and understand your rights as a consumer.
Talk to people you trust: This can be family members or experts. Any professional you know like an attorney, or financial advisor that you know have your best interests at heart. By getting advice early on, you may be able to avoid later confusion and catch misinformation early.
Understand the paperwork: Reverse mortgages and other home loans can be complicated. They can have a lot of paperwork that contains terms, conditions, and the details of your loan agreement. It is important that you understand everything before you sign anything. Make sure to read everything thoroughly and ask whatever questions you have. It is always best to have someone you trust, like an attorney, look over any paperwork before you sign it.
Do not reply to unsolicited contact: Whether this takes the form of ads in the mail, emails, or phone calls, it is best to not provide a response when you are being unexpectedly offered a loan.
Use your resources: Most mortgage lenders require you to complete independent counseling before they will approve you for the loan. However, it is a good idea to take this counseling regardless of whether or not it is required as it will provide you with the information to help you decide what is right for you. The HUD also has a variety of resources for borrowers to help borrowers stay protected including information and assistance programs.
It’s also important to note that the VA does not offer Reverse mortgages. So, if you are a veteran, pay special attention to anyone offering you a supposedly VA-approved Reverse mortgage.
what is the downside to a reverse mortgage?
Reverse mortgages have been beneficial to many homeowners. However, there are some things to be aware of. The fees and closing costs associated with a Reverse mortgage are often higher than those associated with other loans. The interest rates lenders charge on Reverse mortgages are also often higher than those of other loans. Like with other loans, your home is being used as collateral against the loan, so that comes with its own potential risks. It is also possible that borrowers can use up a lot of the equity of their home. This can leave them with less inheritance to pass on to their heirs.
What happens when the owner of a Reverse mortgage dies?
If there are two co-borrowers, the surviving co-borrower can continue to live in the home and receive the reverse mortgage payments until they too pass away or move out of the home.
However, depending on the terms of the reverse mortgage, the surviving spouse of the sole borrower may have to repay the loan soon after the borrower's passing.
If both borrowers die, then the heirs will receive a notice that the loan is due. They can sell the home to pay the remaining balance of the Reverse mortgage. They can also take out a new mortgage if they decide they want to keep the home.
How to buy out a Reverse mortgage?
Reverse mortgages can be refinanced or paid off in full. You can do this several different ways. In order to pay off a Reverse mortgage you will either need to sell the house or have an independent source of income must be available to the borrower. The loan balance must be paid in full including the interest in accordance with the stated conditions of the loan. There is also no prepayment penalty should you choose to pay off the loan early.
You can also refinance a Reverse loan. Refinancing is when you replace your existing mortgage with a new one. Reverse mortgages are governed by The United States Department of Housing and Urban Development (HUD). HUD states that borrowers can refinance their reverse mortgage after 12 months. It is possible to refinance a Reverse mortgage into another Reverse mortgage with better terms or into a Conventional loan.
Will a Reverse mortgage affect my benefits?
While a Reverse mortgage will not affect your Social Security or Medicare, it might affect your eligibility for Medicaid or Supplemental Security Income (SSI). Unlike Social Security and Medicare, which are non-means-tested programs, needs-based programs like SSI or Medicaid are directly related to an individual's income and assets.
Can a Reverse mortgage be foreclosed?
Yes, a reverse mortgage can be foreclosed after a trigger event, also known as a maturity event, occurs. These events can include things like the owners of the reverse mortgage passing away, if the owners have moved, for example to an assisted living facility, or if the condition of the home degrades too far.