The Consumer Financial Protection Bureau (CFPB) recently released a report that noted reverse mortgages can be confusing. This is true of any financial product. Few consumers truly understand car leases, for example.
The risks of traditional mortgages also seem to be poorly understood given the record number of foreclosures. The report’s conclusion seems to highlight that reverse mortgages are similar to many other financial products in that they are difficult to understand.
However, reverse mortgages are available only to senior seniors, a group of consumers that deserve special protections. There are already some protections built into reverse mortgages that make them different from any other financial product. One of those protections is the requirement that potential borrowers complete an independent education and counseling session.
Some tips to help better understand what a reverse mortgage is
To be sure that consumers get the maximum benefits from this counseling, the CFPB offers some tips on what prospective borrowers should discuss:
- Start with the cost of the counseling, if there is any, and ask if you qualify for a waiver of the fee.
- Ask for an overview of how a typical reverse mortgage works.
- Review all of the different types of reverse mortgage products. As an example, there are loans with adjustable interest rates and others with fixed interest rates.
- Ask the counselor to detail any of the fees you would have to pay to receive funds from a reverse mortgage.
- Ask about any monthly fees that there might be.
- Be sure the counselor explains specifically what will cause the reverse mortgage to come due, such as what happens if you move into a nursing home.
- Ask specifically about what happens if someone else is living in the home with you, would they be able to stay in the home if you had to move into a nursing home or assisted living facility?
- Review how you will pay your property taxes and insurance after the reverse mortgage is obtained
- Determine the exact qualifications you might have to meet to be eligible for a reverse mortgage, such as any property repairs.
- Discuss the rules for selling other products, such as annuities, along with reverse mortgages. Selling some products together is illegal.
- If the counseling is done over the phone, ask them to send you the detailed comparisons of the different types of loans along with all the other information they have.
- If you already talked to a reverse mortgage lender before the counseling, tell the counselor about the loans you were offered and be sure to mention any other financial products the lender offered, if any, especially annuities which have additional rules to protect you.
The CFPB also notes that you can receive counseling about reverse mortgages in person or by phone, but highlights the fact that in-person counseling might be more effective in helping you understand the costs and risks associated with this complex product.
We would be happy to get you started in the education process, which is the first step in determining if a reverse mortgage is right for you. Please give us a call at 1-800-991-4613.