Analysis of Reverse Mortgages

According to Shirley Krohn, a member of the California Senior Legislature advocacy group, reverse mortgages are attracting a lot of people even when other types of loans are much better. As a result, the Consumer Financial Protection Bureau said that it is important to understand the possible consequences of a reverse mortgage.

Recently, the federal watchdog gave a report before the Congress about reverse mortgages, stating that seniors need to be more aware of what loans they are taking on.

Megan Thibos, the primary author of the report, said that it is an essentially confusing mortgage product. A reverse mortgage has a negative amortization, which means the balance on the home loan decreases rather than increases. This is just one example of the many confusing features of a reverse mortgage.

A reverse mortgage is marketed for borrowers aged 62 or older who have paid off their homes are have large equity in them. That equity is used as a bank account, where the senior can draw mortgage principal in monthly payments, as a line of credit or as a lump sum.

Christina Clem, spokesperson for AARP of California, agrees that reverse mortgages can aid seniors, but they are supposed to be a last option when the rest of the options have been exhausted. Moreover, reverse mortgages are intended for people who are rich in terms of equity but poor in terms of cash. However, reverse mortgages can charge high fees and interest.

In addition, Clem said that due to the recession, it is highly possible that there will be more foreclosures based on reverse mortgages. In fact, more or less 46,000 reverse mortgages are in default in the United States. There are a lot of people who, when they took on reverse mortgages, were not aware they still have to pay property taxes and home insurance.

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