DISADVANTAGES OF THE REVERSE MORTGAGE
Compiled by Nancy B. Detweiler
Advertisements for reverse mortgages are everywhere, proclaiming “Seniors First.”
Don’t fall for it! In blunt language, “Seniors First” means “Screw seniors first.” Even more distressing is the fact that reverse mortgages are advertised as government sponsored. Cities list the reverse mortgage as one means for the elderly to pay their real estate taxes. Government joins with the banks to cheat the elderly.
The following list of disadvantages of the reverse mortgage is taken from a report by The Consumers Union West Coast Regional Office and www.consumersunion.org
1. High up-front loan fees and potential lender windfalls. Fees and interest on financed fees can quickly use up a substantial portion of a borrower’s equity, before the borrower actually receives much cash.
2. The origination fee is based on the home’s value, which is much greater than the usual loan amount. Thus, the borrower pays an origination fee that is often higher than that charged for a traditional mortgage.
3. Accrued interest is compounded into the principal of the loan rather than paid off in installments. The interest rates tend to be high and may exceed the rates of a standard 30 year mortgage by as much as 3-5%.
4. Some reverse mortgages also charge higher closing costs and higher mortgage insurance payments than a standard mortgage.
5. A borrower who must suddenly move out of his home (for dire medical reasons, for example) will be hit hard with the costs of a reverse mortgage. This person will owe a substantial amount in fees and interests, while he may have received very little in cash advances. A 1995 study released that 60% of reverse mortgages are paid off for reasons other than the borrower’s death.
6. A reverse mortgage can drain off the equity in the house, leaving little or nothing to bequeath to the borrower’s children.
7. As an agency comes to rely on revenue generated by referral fees, it will have more of an interest in encouraging borrowers to take out reverse mortgages.
8. Over a period of 10 years, the borrower may receive $36,000 (for example) but by the time he does so, he will owe approximately $70,000 to the lender.
9. Reverse mortgages are typically adjustable rate loans, with a life-time cap. [We are now seeing the adverse impact of adjustable rate mortgages on those who cannot afford them. The elderly cannot afford them as evidenced by their need to take out a reverse mortgage.]
Taken from Ms Financial Savvy
10. Seniors report being lied to, subjected to heavy handed tactics by the mortgage brokers, and scammed. They have reported their mental status being placed at risk because they are constantly monitored by the lender. For example: One client related having to take his wife to the hospital and coming home to find real estate appraisers measuring his home.
The list of disadvantages and horror stories goes on and on.
IN MY OPINION: It is unconscionable for our local media and government to assist in propagating the reverse mortgage. AARP should be ashamed of its organization for allowing such mistreatment of the elderly to occur. The AARP lobby on capital hill is very powerful, yet we have a government backed banking program that recommends the reverse mortgage and its corrupt practices to the elderly as a means of solving their economic difficulties. What a disgraceful lie!
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