What are Reverse Mortgages?
A reverse mortgage, also known as the home equity conversion mortgage (HECM), is a loan available to homeowners in the United States that allows them to convert part of the equity in their homes into cash. The HECM is insured by the Federal Housing Administration and issued by private lenders. This process is beneficial for older homeowners, ages 62 and older, who currently have accumulated large amounts of equity in their homes, but would rather convert it to supplement their retirement income.
Traditional mortgages require individuals to take out a loan and then pay it back over time. A reverse mortgage requires just the opposite; the lender makes loan payments to the individual, which is typically based off a percentage of the value of the home. The individual does not pay back the loan until their house has been sold. These payments can be paid in the form of a lump sum, a line of credit, monthly installments, or a combination of these. So, instead of paying off your loan over time, your debt increases. The lender would sell your house to pay off the debt if you were to pass away in that time frame, and all funds leftover would go to your inheritors.
The maximum amount of money that an individual could receive from a HCEM loan is $636,150, but other lenders may offer greater amounts. Although reverse mortgages can be very beneficial for older homeowners, loan lenders may try to scam the older population by luring them in with false claims. It is important that you or your loved one does not fall into the trap of a reverse mortgage scam.
What are Reverse Mortgage Scams?
Reverse mortgage scams can occur during the HECM process. Reverse mortgages involve a substantial amount of cash, ready to be used at any time. Loan lenders, mortgage brokers, or other issuers may try to scam seniors by committing fraud or not being honest with them. Here are some of the common lines that you must watch out for:
- “For no money down, purchase this low-cost property.” Con artists may buy an old, needy, or abandoned property and then persuade seniors into buying these “low-cost” properties. They do this by transferring the deed to them in exchange for no money. When these older individuals move into the home and the con artists assist them in getting HCEMs, they will encourage them to take the lump-sum option of payment. Once it is time to close, the con artist will bolt with the cash, and the seniors are left with a large amount of money owed.
- “Delay your Social Security payments by taking out a reverse mortgage.” Homeowners may be encouraged to take out a reverse mortgage at the age of 62, in order to generate an income while delaying the Social Security benefits until 70. However, the Consumer Financial Protection Bureau has concluded that loan costs have exceeded the Social Security increase that the homeowners would have gotten by delaying the time it took to receive their benefits. So, this method does not actually work and will result in major financial loss.
- “By taking out a reverse mortgage, you will receive free income with no risk.” The money individuals get from reverse mortgages is not taxed, which explains why individuals are technically receiving loan payments when they take out a reverse mortgage and not an income. Lenders who use this method to reverse mortgages may fib on the true amounts of fees you’ll pay later on, which may escalate to very high amounts. You could even lose your home if you do not pay your property taxes or maintain the condition of the home.
How Can You Prevent Reverse Mortgage Scams?
You can prevent reverse mortgage scams from happening to you or your loved ones by utilizing professional and credited services to guide you through the reverse mortgage process. Customer reviews are key in finding a trusted and experienced lender.
Services like eKomi, an online database of credible customer reviews, can give you a variety of options and ensure that you match yourself to a reliable and experienced lender. Liberty Home Equity Solutions, Inc, which received the gold seal of approval from eKomi, is one of the most experienced and largest HECM lenders in the United States. For more than a decade now, Liberty Home Equity Solutions has helped seniors feel more secure in their reverse mortgage process and have allowed them to gain freedom with their finances. Look for Liberty Home Equity Solutions reviews on eKomi to understand the tools you need to have a successful reverse mortgage.
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