A traditional mortgage is a loan that requires you to make monthly payments to your lender. With a reverse mortgage, as the name implies, the lender provides you with a lump sum, a line of credit or monthly payments based on the amount of equity in your house.
These loans are usually more expensive than traditional loans. It is still considered a loan, but you do not have to pay the loan back until you sell the house or you are no longer living there.
A reverse mortgage is typically made available to older Americans whose mortgages are paid off or are close to being paid off. You can use the payments from your reverse mortgage to maintain your financial stability. For instance, reverse mortgage payments have been used for many purposes, including property improvement, medical expenses, and travel.
For senior citizens living on a fixed income with a mortgage that’s all but paid off, a reverse mortgage may be an attractive option. It allows them to continue to own their homes and pay off their bills.
Because reverse mortgages involve senior citizens, these types of transactions can be ripe for abuse and scams on the elderly. Senior citizens in a reverse mortgage scam may be offered investment opportunities, free homes or foreclosure assistance.
Sometimes the senior citizen might be pushed by a lender to take out a reverse mortgage when that lender knows it is not the best option for them. They are often targeted by people they know, as well as strangers through television and direct marketing.
While scammers can be quite crafty, there are several things to keep in mind when considering a reverse mortgage:
- Shop around. It is always best to get personal recommendations from people who have used a lender with whom they have had a successful transaction.
- Counseling. Reverse mortgages can be more complicated than traditional loans. Consider consulting with a reverse mortgage counselor who will fully explain how it works and what you need to do to keep your home.
- Counseling will also help you to determine whether a reverse mortgage is really the best option for you given your particular circumstances.
- False claims. There are legal disclosures that a lender must make before you sign a loan. A legitimate lender will explain what these disclosures are and why they are being made.
- Aggressive sales. If you receive a random call from someone claiming to be in the business of selling reverse mortgages, this is always a red flag. However, you can encounter aggressive sales tactics from lenders whom you contact or even venders.
- For example, you need to complete repair on your home and your contractor suggests taking out a reverse mortgage. Further, the contractor suggests the name of a lender to use. While the recommendation might be quite legitimate, it is important to understand the motivations of the person recommending a reverse mortgage.
- Deceptive Advertising. The commercials on television regarding reverse mortgages are more common than they were several years ago. You may even have received a flyer or brochure in the mail about taking out a reverse mortgage. Sometimes these advertisements make false claims, such as that the reverse mortgage is authorized by the government, or leave out key fees and terms.
- For example, the homeowner is considering a reverse mortgage and the lender tells them that they will never be in danger of losing their home. This is great news for the homeowner who wants to move into a retirement home and lease their to a relative.
- That statement is false, of course, since the homeowner must continue to reside in the home in order to continue to qualify for the reverse mortgage. The homeowner can also lose the home if there is a sale, transfer of title, or if the homeowner fails to pay the property taxes and insurance.
- Free income. Some scammers may claim that a reverse mortgage is a great idea because it is a no-risk mortgage that offers you free income. That is false claim since there are clear risks for taking out a reverse mortgage.
- Further, you are not receiving income; this is a loan that you will be required to pay back if any of the conditions of the loan are triggered.
Remember, a reverse mortgage is not free money. You are required to repay it and there are certain conditions that you must continue to satisfy in order to keep your home.
If you are considering a reverse mortgage, it is very important that you do your homework and consult with a local real estate attorney before you sign any documents. As well, an attorney can advise you if you find you are the victim of a reverse mortgage scam.