In the news, reverse mortgages—a form of exchanging equity for money—is often portrayed as dangerous and risky for seniors.
For example, the Philadelphia Inquirer stated that the hidden risks, deceptive advertising, targeting of minorities, and nullification of intergenerational wealth transfer are all the main reasons that a reverse mortgage is not a very appealing choice for seniors.
However, reverse mortgages may not be as scary and hard-hitting as they put it.
The obligations for the risks are hardly hidden; potential borrowers who desire a reverse mortgage receive a pamphlet titled “Home Equity Conversion Mortgage Analysis”. This pamphlet tells the borrower about the risks and requirements of a reverse mortgage, and makes the obligations very clear, it does not miss-advertise or hide the risks involved.
When making such large and important financial decisions you absolutely need to work with someone you can trust to be looking out for your best interests first. Predatory lending describes loan officers who encourage bad decisions and therefore increase their commission at the expense of their clients.
Targeting those who are least able to understand the details of a reverse mortgage can be a problem. This is why it is very important to work with someone like myself who can clearly and honestly explain the details.
And finally, while reversing your mortgage does nullify some, if not all of your intergenerational wealth transfer, it’s not a problem with the program, it’s the design. The reverse mortgage assumes that the person withdrawing from their equity believes that they can do better things with the money than their heirs.
All in all, a reverse mortgage isn’t necessarily a bad thing.