Reverse Mortgage

How to Protect from a Financial Hardship Brought on by a Reverse Mortgage

A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit.

According to the Consumer Financial Protection Bureau (CFPB), consumers are frustrated with their loan terms, servicer runarounds, and foreclosure problems.  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. Here’s what you can do if you already have reverse mortgages. CFPB shares these tips on how to plan ahead to protect loved ones from financial hardship brought on by a reverse mortgage.

Because many consumers do not understand the long-term financial impact of reverse mortgages, today the CFPB is issuing an advisory to help reverse mortgage borrowers. The advisory highlights three ways consumers who are the borrowers on the loan can help plan so that their surviving heirs are not harmed:

Reverse Mortgage Tips

  • Verify who is on the loan: If two borrowers took out the reverse mortgage, they should check with the reverse mortgage company to make sure its loan records are accurate.
  • Plan ahead for the non-borrowing spouse: For consumers who took out a HECM reverse mortgage in the name of only one spouse before August 4, 2014, they should contact their loan servicer to find out if the non-borrowing spouse may qualify for a repayment deferral. If not, they should make a plan in the event the borrowing spouse passes away first. Couples with enough remaining equity could consider taking out a new reverse mortgage, but they will incur new loan fees. Some surviving spouses may also be able to pay off the reverse mortgage, or take out a traditional mortgage, perhaps with another family member. Many will need to plan for where they will live after the home is sold to repay the loan. If the loan was originated after August 4, 2014, new changes to the HECM program will allow the non-borrowing spouse, meeting certain conditions, to remain in the home.
  • Plan ahead for other family members living in the home: Consumers should make sure any children or other family members living in the home know what to expect when the reverse mortgage is due. If those members want to keep the home, the borrower should contact their reverse mortgage company to have them explain their options. They can also contact a HUD-approved housing counselor to explore their options:

By Diego Loya

Diego Loya is a Realtor - Broker at Home Living Real Estate Brokerage, a Orange County full services real estate company. Over the past 12 years, Diego has helped homeowners sell and buy their homes. He's loves educating and empowering real estate consumers. You can find him on Google, Facebook and Twitter.

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