While consumer confusion about reverse mortgages continues to be of concern within the industry, a recent article on the consumer financial education website NerdWallet may have unintentionally highlighted some of the difficulties in informing potential borrowers about these products.
In “When You Should (and Shouldn’t) Get a Reverse Mortgage,” writer MJ Knoblock offered a basic explanation of reverse mortgages and identified some questions that seniors should consider to determine whether a reverse mortgage would be a good fit for their needs.
Potential borrowers should determine whether getting a reverse mortgage could bump them into a higher tax bracket, Knoblock wrote. He also argued that reverse mortgages are not smart options for those who “find budgets annoying and tend to spend money freely as long as it’s available.”
Readers contradicted Knoblock in the article’s comments section. The article should have specified that cash flow from a reverse mortgage is tax-free, one commenter wrote. The commenter also argued that a reverse mortgage might, in fact, be a good option for people who have problems with money management, because these people very well might find themselves without substantial savings for retirement.
While the disagreement sparked by the article may appear trivial, it suggests why consumers researching reverse mortgages encounter challenges in getting easily understandable, reliable information. It’s a situation that has raised red flags in the federal government, with the Consumer Financial Protection Bureau citing it as a problem in a recent report.
“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” CFPB Director Richard Cordray stated in a press release about the report. “As more baby boomers choose reverse mortgages to tap into their home equity, they need to understand the unique terms and features of this product.”
Written by Tim Mullaney