It is important that one understands how a reverse mortgage works and know what can and cannot be done. There sometimes is confusion between what one believes a reverse mortgage can do and the way the reverse mortgage functions. For example, many consumers, for example, struggle with understanding how quickly their loan balance will go up and their home equity will fall.
The top complaints about reverse mortgages include:
Distress about the inability to add new borrowers to an existing loan: Reverse mortgages prohibit spouses, heirs, and dependents from taking over the loan. This is because loan amounts are, in part, calculated using a borrower’s age and the loan repayment is triggered when the last borrower moves out or dies. This can be a problem for surviving spouses and children. Family members complained about not being able to be added to the loan so they could keep the home.
Frustration with runarounds when trying to pay off the debt: When the borrower dies, heirs can sell the home, repay the loan balance, or pay 95 percent of the property’s assessed value. Consumers complain that loan servicers do not provide a clear process to allow them to settle the debt.
Struggles with foreclosure due to issues with property taxes and homeowners’ insurance: Reverse mortgages require no monthly mortgage payments but borrowers are still responsible for property taxes and homeowner’s insurance. Nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they have failed to pay these expenses.