What disadvantages might seniors looking into the reverse mortgage encounter? Despite a lot of positive press on the program, there are some cautionary info and real dangers that a senior should be aware of before jumping in headfirst.
The first and potentially the most important pitfall to avoid are unscrupulous reverse mortgage companies. The old adage, “you know them by their fruits" applies here. If they seem slimy, they probably are. To what effect? For one, after contacting them, they may never leave you alone. You could get on their marketing list and forever be receiving annoying phone calls and a mailbox full of their junk mail.
A real disadvantage is that these second-rate reverse mortgage lenders may employ less-than-knowledgeable salespeople who are quick to promise you the world, but when it all shakes out, utterly fail to deliver. They adhere to the “over-promise and under-deliver" principle. This becomes a real problem when, as interest rates rise, they take up a month or two of your time, and incur appraisal and counseling fees only to tell you that your reverse mortgage was not approved.
Another disadvantage with some reverse mortgage lenders is a lack of options. If they are a reverse mortgage bank (you know, think of the BIG bank names), then they are only going to offer you their own reverse mortgage programs, which may not be the best of available options for your situation. There are about 12 different reverse mortgage programs, all of which only the largest correspondent lenders have access to. The big banks usually have only two or three of these programs.
The mortgage brokers are no better because they usually offer only one or two programs, do not know much about any of them and have to add extra fees onto the transaction in order to make a buck. Talk about a pitfall! Correspondent reverse mortgage lenders on the other hand, have access to the full range of programs including all the big Banks’ programs yet charge the same fees as the big banks due to their wholesale relationship with them.
Bottom line on choosing your reverse mortgage lender: do it carefully. Check their licensing, ask for references, make them show you lots of programs and ask yourself if you are convinced that they know what they are doing.
A personal pitfall of the reverse mortgage is to think that the program is offering free money. It is not. You are tapping into your home equity that you have built up over the years that you have owned your home and paid your mortgage. The only way of doing this without selling your home or taking on monthly debt payments is with a reverse mortgage.
Lenders do not offer reverse mortgage money for free. It is a business transaction: you get the money out of your home equity and the lender gets a mortgage lien on the home, entitling them to repayment with interest. It is up to you to decide if the money that you receive from transaction is worth the cost. To figure the cost of a reverse mortgage, ask your lender for an amortization schedule based on your circumstances. Hint: if they cannot give you one in short order, they do not know what they are doing. You are well advised to find a new reverse mortgage lender.
Armed with the knowledge of these reverse mortgage disadvantages and pitfalls, you should be better prepared to investigate the reverse mortgage and decide if it is right for you or someone you know.
Larry Denver is a consumer advocate and watchdog for senior scams. He helped produce http://www.ReverseMortgageDisadvantage.com to educate and inform seniors about reverse mortgage disadvantages