MEMPHIS, Tenn. — With a reverse mortgage, it’s easier than ever for a senior to convert their home into cash. But there are some important catches, and data shows they’re leading to foreclosures.
“Reverse mortgage is not for everyone,” financial advisor Charles Sims Jr. cautions.
If you’re 62-years-old or older, a reverse mortgage allows you to borrow against the equity in your home and continue living there while the lender sends you monthly payments. You can also opt for a lump sum of cash, but it doesn’t come without risks.
“The rules will be you’ve got to pay your homeowner’s insurance, you’ve got to pay your taxes,” Sims said.
Failure to do either of those things, or a number of other things, will lead to foreclosure.
Data compiled by USA Today shows the 38109 zip code, which comprises southwest Memphis, had the city’s highest number of reverse mortgage-related foreclosures. There were 6.35 per 1,000 senior citizens.
Zip code 38107, which includes north Memphis, had 5.87 foreclosures per 1,000 seniors, and zip code 38114, which includes parts of south Memphis and Orange Mound, had 5.12.
“I still do see a lot of people that are being foreclosed on,” said attorney Webb Brewer.
Brewer believes the trend is partly driven by reverse mortgages that are too complex for most people to understand.
“Even with counseling, I felt like a great deal of the time people didn’t really understand what they were getting into,” Brewer said.
Instead of taking out a reverse mortgage, Sims recommends first considering a home equity loan or selling your home.
“Sometimes we tell people renting is not always the worst thing in the world,” Sims said.
So while a reverse mortgage can serve a purpose and provide you with much-needed money in a pinch, it can also lead to problems if you don’t understand all of the fine print.