More Regulations Coming For Reverse Mortgages

Tuesday, October 16, 2012 17:03
More Regulations Coming For Reverse Mortgages

Tags: reverse mortgages

When used correctly reverse mortgages can be a great way for retirees to pay the bills in retirement without selling their home. However, because fraud claims have been skyrocketing, the new Consumer Financial Protection Bureau is writing more rules for this product. A good article on this appears here.

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If advising clients to use a reverse mortgage it is important to point out some of the drawbacks, namely:

  • High upfront costs
  • It can eliminate their eligibility for Medicaid
  • All equity can be gone by the time they pass away, leaving nothing for heirs
  • Clients might now have to pay mortgage insurance
  • Complexity of the mortgage- It might not be easy for them to understand 

There is also the option of simply refinancing the mortgage, which in general has lower fees and costs involved. Either way, it is of course vitally important that clients do not run out of money in retirement. If they are cashing out equity in the hopes of spending it all before a certain age, they might be in for serious trouble down the road if either a) they live longer than expected or b) they need more money later on for medical care.


Reverse mortgages can sometimes be a useful option, but they are fraught with risks. Clients need to understand the risks and the costs involved.

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