Beware of Reverse Mortgages

During the retirement years, money can get tight if you are on a fixed income.  You may have bills to pay but not enough income to pay them.  If you are 62 years of age or older, you may qualify for a reverse mortgage.

What is a Reverse Mortgage?

First, what is a reverse mortgage?  It is means by which you can use the equity in your home.  A lender pays you for the equity in your house rather than you making a mortgage payment and you don’t pay back the money so long as you live in the house.   You maintain the title to your house in a reverse mortgage, the funds are generally not taxable and it generally does not affect Social Security or Medicare benefits.  While living in the property, the owner must keep all property taxes current and maintain full coverage insurance on the property or face foreclosure.

What Happens If You Die?

The loan must be paid back so either the mortgage company gets your home or someone like your estate would have to repay the loan.  Most reverse mortgages also have a provision that if you sell your home or move out, the loan would have to be repaid.

Types of Reverse Mortgages

Which kind of reverse mortgage is right for me?  There are three types of reverse mortgages.

1. Single Purpose Reverse Mortgages- loan may be used for one purpose
2. Private loans- loan can be used for what the agreement states
3. Federally –insured reverse mortgages also known as Home Equity Conversion Mortgages (HECMs)- loan can be used for any purpose

HECM’s are arguably the most common type of reverse mortgage and the rules to obtain them are changing effective  April 27, 2016.  These loans require that you meet with a counselor before you are approved.  Borrowers will now be required to pass a financial test before they can take out a reverse mortgage.  The borrowers have to demonstrate their ability to pay the property taxes, maintain the property and maintain the insurance premiums.  The new test also requires that lenders consider the borrower’s income and credit history and not just simply their age and equity in the house.

I found two websites to be a very helpful as a resource about reverse mortgages.  Visit www.hud.gov and www.consumer.ftc.gov.

If you already have a reverse mortgage and have defaulted on the property taxes and/or insurance premiums and are facing a foreclosure, call to make an appointment to meet with one of our experienced attorneys at one of the Bond and Botes locations who can advise you on a Chapter 13 bankruptcy to see if that would be your best option for saving your home.