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Here's What You Should Know About Reverse Mortgages


Reverse mortgages are mortgages available to older adults (age 62 and older) that allow them to borrow money based on the value of their homes. By accessing the equity in their homes, the idea is that seniors will be able to eliminate their monthly mortgage payments and use the money saved for other expenses. Borrowers won’t have to immediately pay back the debt, either – it can be deferred until the person either moves out of the home or passes away, meaning that the payment will be taken out of their estate or from the proceeds of the sale of the home.

Sounds straightforward, right? Unfortunately, while reverse mortgages can be helpful as part of a well-conceived financial plan, they can prove disastrous if they are entered into without fully understanding how they work. In fact, a study conducted in 2015 by the Consumer Financial Protection Bureau concluded that people who saw ads for reverse mortgages on television had several misconceptions about exactly how the loans work. Sadly, there have been many stories of people who obtained a reverse mortgage and later lost their homes because they didn’t fully understand what they were getting into.

Considering a reverse mortgage? Here’s what you need to know:

  • In a reverse mortgage, the amount of money available to a borrower depends on the value of their home, how much they still owe on the mortgage, and the age of the borrower. Borrowers can choose to receive their payment as a lump sum, a monthly payment, or a line of credit. Repayment is not due until the borrower moves out of the home or passes away. When the home is sold by either the borrower or an heir, the proceeds from the sale go towards paying off the loan.
  • Reverse mortgage borrowers will still own their home. The bank places a lien on the property and has first claim to any proceeds from its sale. Borrowers must use the home as their primary residence.
  • Reverse mortgages may be helpful for seniors who want to avoid selling off stocks or other assets to cover unexpected costs. They may also opt for a reverse mortgage to pay down or eliminate payments on existing mortgages or other debts.
  • In a traditional mortgage, interest is paid monthly. In a reverse mortgage, because the borrowers do not make payments during the life of the loan, interest payments add up and can threaten to “eat up” the remaining equity in the home. Borrowers must take these costs into account, as well as other costs related to the loan, like taxes, homeowner’s insurance, homeowners association fees, and more. Failure to pay these costs can result in default and the loan will require immediate repayment.
  • Reverse mortgages are not just something couples need to consider – it’s actually a family decision. Talk to your family about a potential loan and discuss how it will affect their estates and their heirs’ inheritance.

Reverse mortgages aren’t right for everyone. You should never feel pressured to take out a reverse mortgage, and with so many scammers preying on seniors, you should rely on the assistance of a legal professional before making any decisions. If you are considering a reverse mortgage to free up funds and pay down debts, consult with a Chicago consumer lawyer at Atlas Consumer Law for sound legal advice. Consultations are available when you call (312) 313-1613.