Explore your options and ask questions
With the cost of living on the rise, some senior citizens are finding themselves on shaky financial ground. This trend has led to companies offering reverse mortgages – where lenders loan people money based on the equity built up in their homes – as a way for seniors to “cash in” on their homes to pay other bills. However, the Better Business Bureau of Minnesota and North Dakota (BBB) warns that these types of mortgages are not for everyone and should be researched carefully to ensure your short-term and long-term needs will be met.
“Reverse mortgages are sometimes touted as a cure-all,” said Dana Badgerow, president and CEO of the BBB of Minnesota and North Dakota. “However, as with all investments, people need to make sure they understand how these mortgages work, as well as ensure they’re clear on the benefits and possible risks.”
Reverse mortgages allow you to convert part of the equity in your home into cash without having to sell your home. The cash may be paid to you in installments or a lump sum, so typically you don’t need to pay anything back so long as you live in your house. Consumers should understand, however, that because they’re deferring repayment of the reverse mortgage – until they move out of their home or die – the amount they owe will grow substantially over time. Interest charges are added to the loan each day it’s held, so it’s possible the reverse mortgage may grow to equal the value of the home, leaving them, and their heirs, with nothing. People who take out reverse mortgages are also still responsible for property taxes, insurance and maintenance costs.
To qualify for a federally insured reverse mortgage, you must live in your home and be at least 62 years old. Factors such as: your age, the type of product, the value of your house and how much you owe on your house all contribute to the amount of money you may borrow.
The BBB advises the following when considering a reverse mortgage loan:
- · Research the company you’re considering working with at bbb.org
- · Weigh your options carefully. Reverse mortgages are not for everyone. The Minnesota Attorney General’s Office reminds people that due to the high cost of these mortgages there may be better options if you only need to borrow a small amount of money for a short period of time.
- · Be cautious of salespeople who try to sell you predatory loans or seek to tie up reverse mortgage proceeds in long-term deferred annuities or questionable investments.
- · Don’t be intimidated by fear-based sales tactics or allow yourself to be pressured into a deal you don’t fully understand.
- · Do not deal with individuals or firms that charge a loan “finder’s fee.”
- · Move slowly and review all documentation closely. If the offer sounds too good to be true, it probably is.
For more information, visit www.ag.state.mn.us/Brochures/