Is A Reverse Mortgage Right For You? | Attorney General - State of Colorado

Is A Reverse Mortgage Right For You?

Reverse Mortgage Caution Sign

Reverse mortgages are often used by older homeowners considering using the equity in their home as an alternative financial asset management tool to provide funding for certain activities.  As with any financial management tool, homeowners should first fully take the time to understand reverse mortgages, know who they are conducting business with, and make completely informed decisions prior to signing up for anything, including reverse mortgages.

Reverse mortgages take part of the equity in your home and convert it into payments to the owner. The money you get usually is tax-free, and it generally won’t affect your Social Security or Medicare benefits. However a reverse mortgage may not be for everyone.

Some reverse mortgage facts to consider:

  • A reverse mortgage does not guarantee financial security no matter how long you live.
  • There are fees and other costs, like an origination fee and other closing costs, as well as servicing fees over the life of the mortgage.
  • Interest is added onto the balance you owe each month. That means the amount you owe grows as the interest on your loan adds up over time.
  • Interest is not tax deductible until the loan is paid off, either partially or in full.
  • You have to pay property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay your property taxes, keep homeowner’s insurance, or maintain your home, the lender might require you to repay your loan.
  • Reverse mortgages can use up the equity in your home, which means fewer assets for you and your heirs.
  • Generally, you don’t have to pay back the money for as long as you live in your home. But when you die, sell your home, or move out, you, your spouse or your estate must repay the loan. That might mean selling the home to get money to repay the loan.

As with any product or service, homeowners should consider all options and understand that scammers are always seeking opportunities to take advantage of consumers to steal their hard earned money.  For information on reverse mortgages and red flags to watch out for, visit the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).  You may also wish to review the CFPB's Reverse Mortgage Guide.

If you believe you have witnessed or been victimized by a reverse mortgage scam or wish to report suspicious activity, please file a report here