Seattle-based ABC affiliate KOMO-TV featured a story on a recent newscast advising seniors to approach reverse mortgages with caution, soliciting the input of a member of the National Foundation for Credit Counseling (NFCC) who says that reverse mortgages should only be considered as a “last resort.”
In its April 22 broadcast, KOMO News reporter Connie Thompson detailed that while there are some seniors who are being adequately served by unlocking their home’s equity through the use of a reverse mortgage, the “fine print” relating to interest and replacing a traditional, forward mortgage should not be overlooked.
“You may have seen the celebrity ads. But there are lot of rules in the fine print that can make reverse mortgages a tricky deal for many senior homeowners and their families who simply see them as free money,” Thompson said in her segment.
Bruce McClary, VP of marketing at NFCC advises seniors to look specifically at the amount of equity they choose to extract through the use of a reverse mortgage.
“When the money runs out, you can’t borrow any more. You can’t dip into that well,” McClary tells Thompson in the report. “And oftentimes what happens is this leaves seniors with their back up against the wall with one less financial option and a home [they must continue to] maintain.”
Additionally, if a borrower does not stay current on homeowner’s insurance and property taxes, the Financial Industry Regulatory Authority (FINRA) advises that the lender may have the right to foreclose on your home, Thompson says. This means that while a reverse mortgage can be a helpful option for some, “it also puts your home on the line,” she adds.
“It is a back pocket option, and I would say that people should probably save it as something that’s more like a last resort,” NFCC’s McClary says.
Before committing to a reverse mortgage, Thompson advises viewers that they should look to an independent source of information before making a final decision about whether or not to proceed, which she lists as NFCC, the Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB).
“It’s critical to work with someone who requires you to take extensive, one-on-one counseling so you understand everything,” Thompson says. “And ideally, work with someone who offers loans that are backed by the federal government – known as Home Equity Conversion Mortgages or HECMs.”
Watch the full news segment at KOMO News.