Although reverse mortgages are an incredibly relevant option for many people, you can get burned easily if you are not careful. Oftentimes, it is not even the reverse mortgage broker being dishonest as much as it is a lack of understanding on the part of the homeowner. This is not to say some agencies are not out to get you—many reverse mortgage lenders try to trick you into going in over your head and use simple ploys to con you out of your money. For this reason, it is important that you read carefully over your contract and potentially even consult a lawyer to make sure you know exactly what you are getting into.
Look for Hidden Fees
Some reverse mortgage brokers will nickel and dime you with fees that you cannot afford to make extra money from you. If you cannot pay these fees, you can land yourself in some serious trouble. To counter this, make sure you ask your broker exactly what fees you will be charged both now and in the future, and understand what you are being charged for in every case.
It is not uncommon for these agencies to offer industry-beating rates that will lead you to signing with them, only to slam you with rates that are unreasonably high. For this reason, it is incredibly important that you investigate all charges and weigh them against the rates and payouts for each option. On top of this, it is advisable to keep a pros and cons list of each reverse mortgage broker including monthly and upfront fees as well as rates and lump sum payouts. This way, you can rest assured that you know exactly what you are getting and that you get the best possible fit for your situation.
A Common Mistake
Perhaps the most overlooked area when it comes to getting reverse mortgages is signing with spouses. If you take out a reverse mortgage and only one spouse signs, then if that spouse dies first, the conditions may be met for the loan to terminate. This means that the loan will therefore have to be paid back for the second spouse to keep possession of, and therefore living in the house. On top of this, unless the second spouse has money to pay back the loan, there may be problems with debt.
Although this is very unfortunate and not how reverse mortgages were intended to work, the reverse mortgage broker has a solid claim, legally speaking. It is no fault of theirs as the contract is fulfilled and was signed by both a spouse and the agency. That being said, it is far from fair and favorable for the second spouse. It can easily be avoided by setting up a deal with the agency where both spouses sign and are therefore covered by the contract. This is undoubtedly always a clause in the contract, so it can be chalked up to a lack of reading and understanding the contract. As you can see, it is paramount that you always know all of the catches and stipulations involved in your specific contract.