On the surface, a reverse mortgage loan might seem like a brilliant plan for a senior homeowner. Take your home’s equity and use it to secure a loan, as long as you’re at least 62 years old, that is. And the best part? The loan doesn’t need to be paid back until you move out — or until you die.
With a setup like that, what elderly person wouldn’t be tempted to opt for a reverse mortgage if he or she was in need of cash and couldn’t get it any other way? That was the idea, at least. But a recent story in The New York Times shines a light on the unforeseen complications of a system that, on paper, sounds like a flawless scheme.
Take Isabel Santos, the 61-year-old subject of the story, whose father came to America from Cuba in the 20th century and worked to buy a home. Now, Santos’ father is dead, and the home he worked so hard for is slipping away, threatening her inheritance in the process.
Federal rules stipulate that the heirs to the reverse mortgage should be offered to settle the loan for a smaller percentage of its full amount. Instead, many reverse mortgage companies are putting intense pressure on the heirs, some even threatening to foreclose on the homes unless the debt is paid back in full, the Times reports. That data, so the story says, comes from housing counselors, state regulators and families currently suffering through reverse mortgage drama.
But why would seniors be in need of large loans like that in the first place? For one thing, medications aren’t cheap, and the older a person gets, the more of them he or she is likely to be reliant on. Another factor might be housing, which can also be pricey, especially if the senior is looking to move into an elderly care facility or some other type of assisted living program. When the financial hammer falls, the cost has to be transferred on to someone. And based on this Times piece as well as reports in Consumerist, the buck is being passed to the seniors’ heirs.
Even some reverse mortgage companies themselves point out that the loans shouldn’t be taken out by just anyone. As the Best Reverse Mortgage group says, interest rates for these specific types of loans can be highly variable, and that can cause a great deal of economic uncertainty for the seniors who rely on them. In fact, the smaller the loan, the more likely the senior is to run into some type of problem with it in the future.
If recent numbers from the Federal Reserve are any indication, debt among seniors ages 65 to 74 is currently rising faster than debt from any other age group. Couple this with the fact that the reverse mortgage industry as a whole has been suffering since the initial pangs of the recession, and you have a potent cocktail for disaster. The outcome? Unfortunately for both indebted seniors and their heirs, that still remains to be seen.