Reverse Mortgage—Trick or Treat?

Reverse Mortgage—Trick or Treat?

Some people are convinced that a reverse mortgage is a trick—at first. And there are some historical reasons for that belief.

Reverse mortgages have been around since the 1980s. Years ago, some questionable lenders failed to disclose that you are required to pay homeowners insurance and property taxes (which are paid through an escrow account with a traditional forward mortgage). This led to sensational headlines blaming reverse mortgages for foreclosures. A foreclosure is certainly a scary outcome! All homeowners—not just seniors—who do not pay property taxes are at risk of a tax-lien foreclosure.

Over the years, the Federal Housing Administration (FHA) has improved the program significantly to protect seniors:

  • Financial requirements ensure you can afford to pay property taxes and homeowners insurance. (Social security income is usually sufficient.)
  • Mandatory third-party counseling for the borrower ensures that you understand the reverse mortgage.
  • A spouse (of any age) can stay in the home as long as he/she wants (without making mortgage payments), even if the borrowing spouse passes.

It’s understandable that people were concerned with reverse mortgages before these important changes were put into place. A reverse mortgage is not a trick at all. It is a wonderful treat, meant only for seniors!

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