Think through reverse mortgages carefully
By Attorney General Roy Cooper
Many seniors are trying to stretch their retirement savings and Social Security benefits to make ends meet. If you find yourself in that situation, you may have considered tapping into the equity in your home through what’s called a reverse mortgage. While taking out a reverse mortgage can make sense for some seniors, it’s important to examine this tool carefully to make sure it’s the best choice for you.
In a reverse mortgage, the lender makes a loan that doesn’t have to be repaid until the homeowner sells the home, dies or stops using it as a primary residence. The homeowner must be at least 62 years old and have substantial equity in their home to qualify.
Unlike traditional mortgages where the homeowner makes payments to the lender, with a reverse mortgage the homeowner gets a large lump sum payment, monthly payments or a line of credit based on the value of his or her home. The money can be used for medical expenses, home repair or everyday living costs.
While these loans are occasionally advertised as “free money,” they’re far from it. Reverse mortgages often have high upfront fees and interest which get added to the balance of the loan, causing the amount you owe to grow over time. Although some reverse mortgages have fixed rates, most have variable rates that can change with market conditions.
Other important things to know about reverse mortgages:
- Homeowners are still responsible for property taxes, insurance, utilities, maintenance, and other expenses. If you don’t pay your property taxes, carry homeowner’s insurance, or maintain the condition of your home, your loan may become due and payable.
- Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
- Reverse mortgages can use up the equity in your home, and leave fewer assets for you and your heirs.
If a reverse mortgage still seems like a good fit for you, consider the following tips before you sign your name on the dotted line.
Explore other options. Other loan products, such as standard mortgages and home equity lines of credit, may make more sense. Other financial options, such as drawing on retirement plans or selling the home, should also be considered. You may also be eligible for local home repair assistance programs or other public benefits.
Talk to a housing counselor. A reverse mortgage is a complex loan secured by your home. Whether such mortgages make sense for you depends on your financial situation and needs. North Carolina law requires that homeowners consult with a qualified, independent housing counselor before making a decision, so review your loan carefully with your housing counselor. Housing counselors can help you learn about reverse mortgages, identify and evaluate the available alternatives, and understand the potential consequences, including the impact on your taxes, benefits, and heirs.
Be wary of anyone trying to sell you other products along with a reverse mortgage. Because a reverse mortgage can give you access to a large amount of money, it can make you a target for aggressive sales pitches for expensive and inappropriate products or services. Steer clear of anyone trying to sell you other products, such as annuities, long-term care insurance, investment programs, or home repair services, along with a reverse mortgage.