Considering a Reverse Mortgage? Read This First.

The Consumer Financial Protection Bureau says if you’re considering this type of loan, you should look beyond the advertising.

In a reverse mortgage advertisement, you might see enticing images of youthful retirees on the golf course or enjoying other leisure activities. A reverse mortgage is a special type of loan that allows homeowners aged 62 and older to borrow against the accrued equity in their homes. The loan must be paid back when the borrower dies, moves, or no longer lives in the home.

Ads for reverse mortgages are found on television, radio, in print, and on the internet, and many ads feature celebrity spokespeople discussing the benefits of reverse mortgages without mentioning risks. The Consumer Financial Protection Bureau (CFPB) took a look at some of these ads and found incomplete and inaccurate statements used to describe the loans. In addition, most of the important loan requirements were often buried in fine print, if they were even mentioned at all. These advertisements may leave older homeowners with the false impression that reverse mortgage loans are a risk-free solution to financial gaps in retirement.

In conducting their study, the CFPB met with older homeowners in Washington DC, Chicago, and Los Angeles to learn about their thoughts and impressions of reverse mortgage ads. After looking at a variety of ads, many of those homeowners didn’t realize reverse mortgage loans need to be repaid. Instead, some thought they could access their equity interest-free, or that the federal government provided the money as a benefit to seniors. Homeowners told us that the most attractive messages in the ads were “you can live in your home as long as you want,” and that you “still own your home.” Many ads, however, didn’t mention that seniors could lose their homes if they don’t satisfy the loan requirements, such as paying property taxes or homeowners insurance.

Seniors said the ads made reverse mortgages look like a good way to travel and enjoy retirement while they were still young and active. Yet Americans are living longer, more active lives than ever before. Reverse mortgage borrowers can outlive their loan funds by borrowing without careful planning.

Reverse mortgage ads don’t always tell the whole story, so consider these facts when you see advertisements:

1. A reverse mortgage is a home loan, not a government benefit. Reverse mortgages have fees and compounding interest that must be repaid, just like other home loans. With most reverse mortgages, federal insurance guarantees that borrowers will receive their loan funds if their lender has financial difficulty or if their loan balance exceeds the value of their home. However, borrowers pay for this insurance, and it’s not a government benefit.
2. You can lose your home with a reverse mortgage. When a reverse mortgage ad says you’ll retain ownership of your home, or that you can live there as long as you want to, don’t take these messages at face value. These statements are true only if you continue to meet all requirements of the reverse mortgage. If you fall behind on your property taxes or homeowners insurance, are absent from your home for longer than six months, or fail to satisfy other requirements, you can trigger a loan default. If you don’t take care of the default in time, the lender can foreclose on your home. Sometimes these requirements are listed in fine print, but not always. If you have a question about reverse mortgage requirements, contact a HUD-approved housing counselor near you.
3. Without a good plan, you could outlive your loan money. After seeing a reverse mortgage ad, you might think that a reverse mortgage guarantees your financial security no matter how long you live. Americans are living longer today than they were just a generation ago. Make sure you have a financial plan in place that accounts for a long life. That way if you need to tap your home equity, you won’t do it too early and risk running out of retirement resources later in life.

If you have a problem with your reverse mortgage

Check out Ask CFPB to learn more about reverse mortgages. You can also download a printer-friendly version of this information to share with friends or family.

If you’re having a problem with your reverse mortgage or having problems getting through to your mortgage servicer, you can submit a complaint to CFPB online or by calling (855) 411-2372 or TTY/TDD (855) 729- 2372. CFPB will forward your complaint to the company and work to get you a response within 15 days.

For more information about how reverse mortgages work and questions to ask, read CFPB’s guide to reverse mortgages for older consumers and their families. And if you or loved one have a reverse mortgage loan, here are three steps you should take.

Source: The Consumer Financial Protection Bureau, the government agency that aims to make consumer financial markets work for consumers, responsible providers, and the economy as a whole. Visit the CFPB website to read an in-depth report on reverse mortgage ads.