Many people realize they haven't saved enough for retirement and see a reverse mortgage as a possible fix.
Borrowing against the equity in your home for retirement income can be a good idea. But reverse mortgages have a history of problems, and despite recent reforms, Consumer Reports says be careful.
When Karen Hunziker and her husband, Charles, took out a reverse mortgage, Karen was 60 - two years too young to be on the loan.
So she took her name off the title. Then Charles died suddenly and Karen found herself facing foreclosure.
"When I got the notice, I didn't know what to do. I really kind of felt sick to my stomach after a while, and that feeling didn't go away for quite a long time," she said.
New regulations to protect spouses not on the loans came just in time to allow Karen to keep the house. But despite reforms, Consumer Reports says there are still plenty of pitfalls with reverse mortgages.
"Reverse mortgages can be very risky loans. They come with certain conditions and if you don't meet them, you could potentially lose your home," said Consumer Reports' Donna Rosato.
A reverse mortgage can also be expensive. So Consumer Reports says ask yourself some tough questions, like:
- What is the total cost, including closing fees and expenses? Is moving a better, cheaper option?
- Can you truly afford to live in your home? You're still responsible for paying property taxes, insurance, and upkeep.
- And finally: Is this a home you can stay in as you age?
"Does it have a lot of stairs? Is there a big property to maintain? Are you close to good doctors and hospitals? And probably most important, are you near family members who can look out for you if you need help in your older years?" asks Donna.
Advice Karen Hunziker urges other seniors to consider carefully.
One important change Consumer Reports advocates is that before applying for a reverse mortgage, seniors be required to fill out a detailed worksheet that outlines possible consequences.
Consumer Reports helped design such a worksheet, which has recently become mandatory in California, and thinks it should be required everywhere.
If you or a loved one is considering a reverse mortgage, CLICK HERE for more information.
Consumer Reports: Reverse mortgage reforms