Should You Reject Reverse Mortgages As An Option For Retirement Funds, Despite Recent Offers?

Retired Americans are being bombarded with offers for reverse mortgages. These loans allow homeowners to borrow against the value of their homes.

Some reverse mortgage solicitations are aggressive and may even pop up in snailmail. They should be considered as a last resort — and only after consulting with a trusted advisor not connected with a mortgage company.

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Reverse mortgages have particular appeal for retirees who need extra cash. According to the Consumer Financial Protection Bureau (CFPB), “Many older adults value homeownership, with nearly 80% owning their home, and nine out of ten wanting to remain in their homes for as long as possible. Home equity is often an older adult’s largest asset, and one that has grown in recent years as home prices soared across the United States.”

Here’s what the CFPB found in a recent study of reverse mortgage advertising:

• Reverse mortgage direct mail advertising volume increased significantly in 2021 and 2022 compared to the prior five years.
• Direct mail advertising largely went to low- and middle-income households.
• Most direct mail advertising went to consumers living in the South and West regions where reverse mortgage lending is concentrated and where a somewhat higher share of older homeowners report difficulty making ends meet and difficulty making mortgage payments.
• The findings suggest that reverse mortgage advertising during pandemic, when home prices surged and interest rates fell, focused on many older homeowners with high equity, lower incomes, and in regions where homeowners have somewhat less ability to stay current on their housing payments.

As a general safeguard, avoid junk mail, text or email offers on reverse mortgages. Since your heirs or survivors may have to pay off the loan upon your death to keep the house, there’s a big negative factor involved. If you need a reverse mortgage, have a lawyer review the loan and make sure you fully understand the terms.