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Reverse mortgages are attractive to many seniors, and there are good reasons: You don’t need income to qualify, there are no monthly payments and the lender cannot force the homeowner to sell their home to repay the loan, which means the borrower can continue to live in the home for the rest of their lives.
But because mortgages are such complicated lending instruments – and reverse mortgages can be even more complicated than other types of mortgages – many seniors apply for and receive these loans without really understanding the full implications.
As a result, many senior advocates view these loans cautiously and say the prospect of seniors being taken advantage of is high.
As good as these loans sound, there are some significant disadvantages. First of all, reverse mortgages can come with some really hefty fees that can end up making the loans cost thousands of dollars more than a traditional mortgage.
Not all of these fees are paid upfront – sometimes they’re rolled into the mortgage, which means there’s less equity available from which to draw. Some lenders are less than senior-friendly, and they may attempt to charge for financial guidance, which is prohibited.
Finally, seniors need to understand that the home they live in and possibly paid for over many, many years will no longer truly be theirs. Oh, they can still live there and make renovations as they see fit; but if they decide they want to move or change their minds and want to leave it in their will, those will no longer be options.
Still, after all is said and done, there are some things that need to be said in support of reverse mortgages. First of all, just because some lending concepts may be difficult for seniors (and, let’s be honest, even non-seniors) to understand, that doesn’t mean all seniors are unable to understand exactly what they’re getting into.
Secondly, for seniors who need cash for bills or other expenses, reverse mortgages may be their only option, and having options is a good thing.
Finally, while a lot of children oppose the loans on the grounds that the bank will end up with the home in the end, there’s no law that says a home is there to be inherited, and when it comes down to it, a senior of sound mind should be able to have access to loans just like a younger person. Reverse mortgages are an option that makes that possible.
Like any loan, the key is in making sure the borrower truly understands all the ins and outs of the loan, including the true costs of fees and the laws that are written to protect them from predatory lending and other unscrupulous practices. If the senior is of sound mind, there’s no reason they shouldn’t be able to make decisions about their own property and finances, just like anyone else.
Should the loans be outlawed? No. But hopefully, loved ones will be willing to step in and make sure the senior is capable of making the sound decisions necessary to weigh the pros and cons before signing any documents.