Reverse mortgages--a loan for people ages 62 and older that pays homeowners based on the equity they've built up in their house--can be a great way for our parents to pay off medical bills, pay for home improvement projects, or take that trip they've been dreaming of for years.But the loans aren't right for everyone, as the New York Times reminds us in an article about the pitfalls of reverse mortgages. Although the loans are highly regulated (homeowners are required to meet with an independent counselor before even applying) some lenders still deploy sleazy sales tactics including:
- Rushing through the fine print and glossing over closing costs and interest rates
- Offering financial incentives to so-called independent mortgage counselors
- Pushing homeowners into questionable investments with the proceeds of the reverse mortgage
If you're concerned because your parents are thinking about taking out a reverse mortgage--or already have one--there are some simple things you can do to help safeguard their finances:
- Accompany your parents when they meet with their reverse mortgage broker and review all loan documents
- Check with the Department of Housing and Urban Development Web site to make sure your parents' reverse mortgage lender and counseling service are approved by HUD
- Avoid any brokers who also try to sell your parents investments, insurance, or other financial products
- And if you need more information, take a look at this Buyer's Guide to Reverse Mortgages to get fully educated about the risks and benefits of this type of loan.
As the New York Times' piece pointed out, there are federal regulations designed to protect senior citizens who take out reverse mortgages. But I wonder how reassuring those rules and regulations are to those who encounter unscrupulous lenders? Is any amount of money worth that kind of stress and fear?