We’ve noticed that there have been a lot of ads for reverse mortgages and that the specifically appeal to senior.  Many seniors may take out reverse mortgages on their homes and not understand all the implications, not only for them, but also for their heirs.

Reverse mortgages tend to have more complex language that is misunderstood.  Any person age 62 or older may take out a reverse mortgage and access a portion of the equity in their home.  These funds are paid to them in either a lump sum or regular monthly installments.  Each month, fees and interest are added to the balance owed by the homeowner.  The good part about a reverse mortgage is that it doesn’t have to be repaid until the borrower dies, moves out or sells the home.   The bad part is that the borrower’s home equity falls rapidly with the accumulation of fees and interest on the monies that are being sent to the borrower.  Sometimes the borrowers change their minds about having a reverse mortgage, attempt to refinance the mortgage and discover that there isn’t enough equity in the mortgage for them to do so.  It also creates a nightmare for heirs as well; adult children may keep the home only by paying off the loan or by paying 95% of the current appraised value of the home.  Another issue can arise when a surviving spouse whose name was not on the mortgage is forced to sell or face foreclosure due to the death of a spouse.

According to an April 2014 report in Research Magazine, 64% of workers between 55-64 have saved only one years worth of income.  According to 2010 Federal data, about 45% of American workers aren’t saving for retirement at all.

What’s the answer?  Before signing, any legal document, obtain independent legal counsel to  review all documents prior to signing and make sure you understand every clause and that you’re in agreement with every clause.

Fortunately for those spouses who were not on the reverse mortgages, HUD,  the insurer of most reverse mortgages through the Home Equity Conversion Mortgage program – implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status for any reverse mortgages originated after August 4, 2014.

And don’t forget, just because you have a reverse mortgage doesn’t mean that you don’t have expenses.  You’re still responsible for the taxes, homeowners insurance and HOA fees.

There is a great advisory from the financial protection bureau, “Three Steps You Should Take If You Have a Reverse Mortgage,” is available at consumerfinance.gov/blog.

Sometimes circumstances may make these mortgage instruments look attractive but we strongly urge you to review all the options that are available and make a good, financially sound choice that will safeguard your equity and give you peace of mind.