Commercials promoting reverse mortgages as the key to a happy retirement - or a way to finance home repairs - are almost as common as new car ads.
That does not mean a reverse mortgage is right for every senior citizen. As with any transaction, Better Business Bureau advises consumers to do their research before signing up for a reverse mortgage. Fees can be significant, and the mortgage could deplete assets that will be needed when you are no longer able to live in your home.
Reverse mortgages are available to homeowners who are at least 62 years old, have equity in a home that is in good condition and who expect to use the home as their primary residence. Borrowers still own their homes, which means they need to keep paying property taxes, insuring the house and making needed repairs. If you do not, your loan could become payable in full immediately.
Before you get a reverse mortgage, you must meet with a home equity conversion mortgage (HECM) counselor. The Fair Housing Administration (FHA) has information on the loans free of charge, and many counselors provide their services for free or at low cost. A list of approved counseling agencies is available by calling 1-800-569-4287 or online at hudexchange.info/programs/housing-counseling/.
Be sure to check out your mortgage lender's BBB Business Review at midmobbb.org.
Consider whether it is practical to stay in your home at least five to 10 years to make the reverse mortgage economical. Look at any health care or accessibility needs that may make living in your home impractical or unsafe. If you have to move into an assisted living facility or a nursing home, you could be forced to repay the reverse mortgage.
If you have children or other heirs, you should involve them in your decision, to head off any misunderstandings or family discord.
Understand all fees involved in a reverse mortgage. These may include a loan origination fee, closing costs, a mortgage insurance premium, a servicing fee and interest that will accumulate over the life of your loan.
You do not make monthly payments with a reverse mortgage, so the amount you owe grows larger over time. That can reduce the equity in your home - and the amount of cash you might have left if you sell the house and pay off the loan.
Before you close on a reverse mortgage, ask for advance copies of all the loan documents and read and understand them. If you do not understand them, do not sign.
For more BBB tips, BBB Customer Reviews and Business Reviews, call 573-886-8965 or go to midmobbb.org.
Sean Spence is the Mid-Missouri regional director for Better Business Bureau.