Reverse mortgages offer a number of potential benefits for homeowners. Some wealth managers claim that by allowing senior citizens to generate supplementary income, these loans may be able to supplant traditional investment alternatives, like home equity lines of credit. One research director at Boston College even said that along with downsizing, reverse mortgages could be viable options for households where Social Security benefits and 401(k) plans fail to provide sufficient income.
The structure of these instruments may, however, lead to misunderstandings. A study recently released by the Consumer Financial Protection Bureau suggests that such issues are relevant concerns for the seniors who held the approximate 628,000 outstanding reverse mortgages. CFPB officials said that some people may have been misled by advertisements that overplayed the potential benefits of reverse mortgages, and these misconceptions could have contributed to their loan management mistakes.
The federal agency pointed out that factors like celebrity endorsements in reverse mortgage commercials could give people the incorrect idea that such transactions were not really loans that had to eventually be repaid. In some cases, seniors fell afoul of mistakes like taking out lump sums without properly budgeting for subsequent years or failing to have their spouses co-sign their loans. In the latter case, seniors who died first might leave their spouses saddled with a debt that had to be immediately repaid. Some consumers even held the mistaken impression that their previously-accrued equity exempted them from having to pay back reverse mortgage loans.
Although there are fact sheets and data that are published in order to help consumers, reverse mortgages can still be difficult to understand. Those who misread their terms might be left with little recourse other than making unsustainable debt payments. Those who want to take out loans against their property’s equity could find it helpful to learn more about their responsibilities through a discussion with an attorney.