Are Reverse Mortgages Scams?
Like any major property based financial transaction, a reverse mortgage can be manipulated by lenders to benefit them at the expense of the homeowner. The regulations and controls imposed by the Housing and Urban Development (HUD) department and the Federal Housing Authority (FHA) on the reverse mortgage sector typically protect borrowers from most predatory lending practices.
Several criticisms of the reverse mortgage have arisen, however. The first criticism of reverse mortgages is the expense. Reverse mortgages can cost as much as $8,000, whereas normal mortgages usually cost under $5,000. While some of this extra cost is due to the complicated nature of the loan, some feel that lenders are “reversing the risk” while taking in higher fees, which allows them to profit more.
Complexity is another criticism of the reverse mortgage. Many analysts felt that the complicated nature of the loan was confusing many seniors, and that this confusion might lead to lenders taking advantage of them. Think about all of the commercials we have seen stating that if seniors choose a reverse mortgage, that they would pay nothing out of pocket. However, the false statements of the lack of payments and the confusion aspects have not been substantiated.
In fact, a 2006 survey of people who have taken out reverse mortgages found that 93 percent of those people were satisfied with the loan and that it had bettered their lives. There have also been issues raised by the compounding of interest due to the loan interest added to the mortgage lien. The FHA mandated that the borrower could never owe more than the value of his or her home, or pass down the debt to survivors to prevent that from being a problem. While a reverse mortgage might be a great deal and a money saver for some, it does not work in the borrower’s favor every time, so be sure to get all the facts before borrowing.