Wednesday, March 18, 2015

The Truth About Reverse Mortgages

ou’ve seen the ubiquitous TV ads, the ones with mature celebrities Pat Boone, Robert Wagner, Henry “Fonzie” Winkler and Fred Thompson extolling the virtues of a reverse mortgage for homeowners 62 and older.

Thompson, the avuncular television and movie actor and former US Senator and Republican presidential candidate, assures you that, with this “government-insured, tax-free and safe loan,” you can take cash out of your home, have no monthly payments and still own your home.

It’s not only that simple, he infers; it’s the yellow brick road to a financially carefree retirement.

“There’s got to be a catch, right?” asks the pitchman for AAG Insurance Company while staring directly into the camera. “Well, there isn’t.”

Umm … not so fast, Fred.

It turns out that, for some, a reverse mortgage can be much more of a risk than a remedy.

“The closing costs are very exorbitant and there are no two ways around that,” says Paul McLaughlin, who manages the home ownership and counseling education program at NeighborWorks of Southern New Hampshire’s Home Team, which is a collaborative of three agencies including CATCH Neighborhood Housing in Concord and the Area Community Land Trust in Laconia.

“The way that [these insurance companies] lure people in is by saying that they’re not paying these costs out of their pocket. The philosophy is that someday you’re going to die and somebody else will pay it off when they sell the house. Luckily, we don’t always die, and then it’s a lot of tearing into your earned equity,” McLaughlin says.

Nevertheless, with more federal regulations and protections put into place in the past few years, this type of loan is increasingly popular with seniors who want to supplement their income or use their home’s equity now.

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