Reverse Mortgage Wise
What is a reverse mortgage?
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older.
A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan. Also like a traditional mortgage, when you take out a reverse mortgage loan, the title to your home remains in your name. However, unlike a traditional mortgage, with a reverse mortgage loan, borrowers don’t make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month and the balance grows. With a reverse mortgage loan, homeowners are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition.
With a reverse mortgage loan, the amount the homeowner owes to the lender goes up–not down–over time. This is because interest and fees are added to the loan balance each month. As your loan balance increases, your home equity decreases.
A reverse mortgage loan is not free money. It is a loan where borrowed money + interest + fees each month = rising loan balance. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.
Watch out for scams related to reverse mortgages
- Contractor scams
Beware of contractors who approach you about getting a reverse mortgage loan to pay for repairs to your homes. It may be a scam. Don’t let yourself be pressured into getting a reverse mortgage loan.
- Scams targeting veterans
The Department of Veterans Affairs (VA) does not offer any reverse mortgage loans. Some mortgage ads falsely promise veterans special deals, imply VA approval, or offer a “no-payment” reverse mortgage loan to attract older Americans desperate to stay in their homes.
You have a three-day right to cancel a reverse mortgage
With most reverse mortgages, you have three business days after the loan closing to cancel the deal for any reason, without penalty. This is known as your right of “rescission.” To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt so that you have documentation of when you sent and when the lender received your cancellation notice. Keep copies of any communications between you and your lender. After you cancel, the lender has 20 days to return any money you’ve paid for the financing of the reverse mortgage loan. If you believe there is a reason to cancel the loan after the three-day period, seek legal help to see if you have the right to cancel.
Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loans.
Source: Consumer Financial Protection Bureau
Contact your local Area Agency on Aging and 2-1-1 and they may know of additional resources on this topic.
Area Agency on Aging (AAA)
An Area Agency on Aging (AAA) is a public nonprofit agency designated by a state to address the needs and concerns of all older persons at the regional and local levels. AAAs are primarily responsible for a geographic area, also known as a planning and service area (PSA), that is either a city, a single county, or a multi-county district. AAAs coordinate and offer services that help older adults remain in their homes, if that is their preference, aided by services such as home-delivered meals, homemaker assistance, and whatever else it may take to make independent living a viable option.
Find your local AAA by visiting their website or calling 1-800-677-1116.
2-1-1 is a confidential and multilingual service connecting people to vital resources across the state. No matter where you live in Colorado, you can find information about resources in your local community. Dial 2-1-1 from your phone or visit their website.
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