You could lose your home
. Even though you don't have to make payments on a reverse mortgage, you're still responsible for homeowners insurance, property taxes and maintenance. As of last February, more than 9% of reverse-mortgage borrowers were at risk of foreclosure because they had fallen behind on tax and insurance bills, reports the CFPB.
Another problem: Because the amount you're eligible to borrow is based on your age or, for married couples, the age of the younger spouse, some couples remove the younger spouse from the deed to the home before applying for a reverse mortgage. If the spouse whose name is on the deed dies or moves into a nursing home, the loan will come due, forcing the younger spouse to pay off the loan or sell the house. Because of the cost and complexity of reverse mortgages, the Department of Housing and Urban Development requires that you obtain counseling from a government-approved agency. You can find a counselor in your area by calling 800-569-4287 or visiting www.hud.gov/counseling
Even seniors who are happy with their reverse mortgages say the application process is a lot more complicated than the ads let on. David Bishop, 69, of Mystic, Conn., says his application was rejected by three banks after their appraisers found minor problems with his waterfront property. The third bank referred Bishop to a reverse-mortgage specialist, who helped him qualify. Bishop plans to downsize to a smaller home eventually, but the line of credit he received from his reverse mortgage will allow him to stay in his current home a few more years. "I'm glad I'm not a frail senior in my seventies or eighties, as this experience would have probably given me a heart attack," he says.
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