It’s the borrower’s responsibility to pay tax and insurance after taking out a reverse mortgage, and the horror stories that result from not paying those charges are preventable, writes syndicated columnist Tom Kelly this week. The few seniors who have run into problems have not kept current on property taxes or did not fully understand the borrowing details of reverse mortgages, writes syndicated columnist and talk-show host Tom Kelly.
More often than not, reverse mortgage horror stories have described a widowed spouse being forced out of her home because it was her husband who signed the reverse, Kelly explains. Since the spouse might have been younger than the required age of 62 at the time of her husband’s signing, she is forced out of the home after her husband’s death unless she, or any heirs, are able to shore up repayment for the reverse mortgage.
How can the trailing spouse’s situation be understood to curtail future scenarios such as this? For one, a possible solution could rely on increased attention toward the fixed-rate product, Kelly suggests.
Tom Kelly writes:
Preloan counseling is mandatory on all reverse mortgages insured by the Federal Housing Administration (FHA), but a few cases are slipping through the cracks with folks being misled by lenders or who are willing to live with the consequences.
The second key problem plaguing the reverse industry is property taxes. In some states, seniors who take out a reverse mortgage are no longer eligible for property-tax deferrals. When funds are needed elsewhere—additional medical care, household expenses—property taxes go unpaid. Ultimately, the homeowner can be forced to sell to satisfy tax liens.
What has brought this situation to the surface recently has been the percentage of seniors taking out fixed-rate reverse mortgages rather than the adjustable-rate option. Older people have always been more comfortable with fixed-rate loans. They prefer dependability and consistency. However, the fixed-rate reverse requires seniors to take a lump sum at closing rather than monthly payments and a line of credit. They end up spending the money faster than anticipated and do not earmark the proceeds for taxes and insurance.
Written by Jason Oliva