News Risks of Reverse Mortgages

Risks of Reverse Mortgages

You may have seen the ads on television, on the Internet, or in print—a spokesperson telling you how a reverse mortgage can give you the money to solve your financial problems while allowing you to stay in your home. Maybe you’re a senior who owns your home. You have an income that’s fixed but bills that seem to keep rising. A reverse mortgage sounds like the perfect solution. But there’s a lot that reverse mortgage ads don’t tell you. You could end up losing the home that you thought you would be able to keep.

So what is a reverse mortgage? In a reverse mortgage, a borrower gets money from a bank now, and in exchange, the bank may get their house later, usually after the borrower dies. Interest grows on the amount of money the borrower gets, which means that the loan balance grows over time instead of shrinking like in a traditional mortgage. It’s a complex financial product. Many homeowners considering reverse mortgages have taken out mortgages to buy their homes and assume a reverse mortgage is comparable. But there are pitfalls to a reverse mortgage that homeowners who’ve had a previous mortgage might not be aware of.

Why should you be wary of reverse mortgages? For one thing, taking a reverse mortgage means that your heirs (for example, your children) will not inherit your home. Instead, they will have to pay off the reverse mortgage loan (which has now grown with interest) or buy the home from the bank. If other family or friends live with you, they will have to move if you pass away. If your spouse is not a borrower on the reverse mortgage and you pass away, your spouse will have to meet various conditions to remain in the home. Your spouse may be forced to move if they cannot meet all the conditions required to remain in the home.

One of the conditions is current property taxes. Property taxes usually total up to several hundred dollars a month. In a traditional mortgage, the bank typically uses an escrow account to pay these property taxes and include the cost in the borrower’s monthly payment. In a reverse mortgage, the borrower has to pay these taxes separately. If the taxes are not paid up to date, your spouse will not be able to remain in the home if you pass away. Even while you are living in the home, the bank can start the foreclosure process if you fall behind on property taxes.

Homeowners who take reverse mortgages often find that reverse mortgages cause more problems than they solve. Northampton County has recognized reverse mortgages as a particular concern for county seniors. If you live in Northampton County and are concerned about your reverse mortgage situation, we encourage you to apply for services with North Penn Legal Services by calling our main intake line at 877-953-4250 or by applying online at