Reverse Mortgages: Scam or Godsend?
If you've been watching the local TV stations or have been driving down I-15 in Utah County recently, you may have seen ads with local TV personality Dick Norse endorsing a reverse mortgage company. The ads suggest that Dick Norse would trust this company with his family's future, blah, blah, blah. And maybe that's true. I know nothing about this particular company endorsed by Mr. Norse, but I can give you some information on reverse mortgages that can help you cut through some of the myths that surround this industry.
A reverse mortgage is exactly what it sounds like. Instead of you paying money to the bank over time so that you can live in your home while you build up equity in it, a reverse mortgage allows you to continue to live in your home while the bank pays you. What the bank gets in return, is a mortgage on the equity in your home. So when you and your spouse move out of the home (to go to a nursing home for example) or when you both pass away, the proceeds of the sale of your home will be used to pay back the bank for the money they advanced to you while you were living in your home. Generally, if there is any equity left after paying back the loan, it will go to your heirs.
That's the basic concept. However, the bigger question is this: Is a reverse mortgage right for you?
It is this question that creates so much controversy about reverse mortgages. For some people, reverse mortgages can be a true godsend and it is entirely appropriate. For others, depending upon their financial circumstances and goals, it can be a disaster.
The bottom line is this, you must do your research before entering into a reverse mortgage. The AARP has provided an excellent starting point for learning more about these products. Another good summary of reverse mortgages can be found here. There are, without a doubt, shady individuals in the reverse mortgage industry who will take advantage of you if they can. And there are also honest individuals in the industry who work hard to be ethical and open about the fees involved and the potential risks associated with these types of things.
If you, or a family member, are looking for sources of income that will allow you to remain in your home for as long as possible, a reverse mortgage might be a great option. But before you pull the trigger on it, I would strongly suggest that you start with the resources I've linked to above to learn more first. If you still have questions, an elder law attorney who has experience in this area can often provide a much needed unbiased assessment of whether a reverse mortgage is an appropriate alternative for you or your family member.
Your home is often your largest asset. Before you sign it away to a bank, you owe it to yourself and to your family to exercise due diligence in knowing what you're getting yourself into.