I’m broke. Should I consider a reverse mortgage?

You are over 62 years old, own a home and are struggling to pay the bills. An advertisement comes on TV that tells you that you can turn your home’s equity into “tax-free cash.” You learn that by signing up for a reverse mortgage, you will be able to stay in your home until you pass away — as long as you qualify.
It sounds like a promising option, but like anything promising, there are drawbacks.
Why would mortgage companies offer reverse mortgages? First, they bring in money. By only offering reverse mortgages to individuals over 62 years of age, they can expect a good return on many of their investments. Furthermore, they allow banks to immediately foreclose on a home after a death.
Yet, even though consumers must go through counseling before receiving a reverse mortgage, many do not understand the full implications. “It is not free money,” the government is now warning consumers.
Instead, the assistant director of the Consumer Financial Protection Bureau’s Office of Older Americans, Hubert H. Humphrey III states, “[Your home] is your nest egg. This is what you use when you don’t have any resources.” Unfortunately, people often decide to take the money out at age 62 and find that, years later, they need it and it is no longer there.
Take, for example, the story of a woman who was younger than 62 when she and her husband (who was over 62) applied for a reverse mortgage. Since she was under the required age limit, she was unable to sign the mortgage. When her husband passed away, the bank immediately foreclosed on the home, leaving her with very little, the money from the reverse mortgage already spent.
So, if not a reverse mortgage, then what? If you suffer from overwhelming debt, filing for bankruptcy may be an option for you. Most homeowners are afraid to file for bankruptcy because they believe they will lose their home and other possessions. Yet, in most cases, debtors are able to keep their homes during and after bankruptcy. This is because certain property is exempt from liquidation under state and federal bankruptcy laws.
If you are a senior facing significant debt, consider all of your options before deciding on a reverse mortgage. As Humphrey points out, a reverse mortgage should be considered as a last, and certainly not a first, option.
Learn more about debt relief options by visiting our pages on debt relief in Indianapolis.