When terms of a loan are clearly illegal, violating predatory lending laws that were in place when the loan was made, one of the first courses of action is to see if a lawsuit can be brought against the lending company, saving the senior’s home that way, said Bronwyn Belling, former national program coordinator for the Reverse Mortgage Education Project at the AARP Foundation.
Many loans aren’t technically illegal, but it’s obvious that they shouldn’t have been made to an older person on a fixed income. That’s when Grauer presses for a reverse-mortgage payoff.
The second hurdle is arranging the reverse mortgage itself.
Traditionally, these loans are used to give people with little or no mortgage debt a lump sum or monthly income to pay expenses while they live in their home. The older the homeowner and the higher the home equity, the more money a reverse mortgage will yield.
But when there’s a big mortgage, combined with today’s dropping home prices, the homeowner may have little or no equity. In that situation, a reverse mortgage can be difficult to get.
Why not a reverse mortgage?
Even for those who qualify, reverse mortgage loans aren’t always the best option.
• They’re very expensive because most of the loan fees are based on the full value of the home, up to a national program limit of $625,500. In conventional mortgages, fees are based on a percentage of the amount you can borrow.
• Accrued interest payments are not tax-deductible until the loan is repaid in full, usually at some point in the distant future.
• Since the loan grows larger over time, it may be difficult to leave the home debt-free to an heir.
Every homeowner who receives a federally insured Home Equity Conversion Mortgage, the most popular type of reverse mortgage, must first receive counseling from one of the government or nonprofit housing counseling agencies approved by the U.S. Department of Housing and Urban Development.
Many experts think such counseling should be made more widely available to seniors facing foreclosure. Check out AARP’s website on reverse mortgages and other less costly alternatives to help you remain in your home.
Freelance writer Marilyn Melia has covered mortgage matters for more than two decades.