Scams

• The reverse mortgage industry is not immune to scams and con artists. Be wary of disreputable lenders who offer seemingly amazing rates and deals. Dishonest lenders and brokers specifically target seniors, often promoting financial security without disclosing negative terms, such as the detriments of using an adjustable rate.
  Avoid paying for a reverse mortgage consultation. Instead, contact the Department of Housing and Urban Development at (800) 569-4287 for a referral to a free or low-cost local counselor. Even if you don't want a HUD mortgage, you should discuss your situation with a HUD-approved counselor before entering a reverse mortgage.
  
  

Calculation

• A reverse mortgage, like a traditional mortgage, can be established in different ways. For example, the mortgage can be based on a fixed or variable interest rate, and you can receive a lump sum or monthly payment. Before closing on a reverse mortgage, make sure that you understand the final calculations of your monthly payment. Carefully analyze the fees, and don't let lenders slip in excessive administrative or processing fees. Also realize that most lenders require homeowners to maintain adequate insurance and that the insurance premiums along with property taxes often are deducted from the monthly payment. Thus, if you expect $1,200 a month from the lender, but $250 will be deducted each month for insurance and taxes, you will receive $950 a month.
  
  

Considerations

• Another important factor to consider involves whether the mortgage requires the property to be the primary residence of the senior citizen. If this is the case and you move into a retirement home or with your children, the lender might be able to demand repayment of the loan or take possession of the property. Also make sure that you analyze the home appraisal so that your house is not undervalued.
  While there are no restrictions about how you can spend money received from a reverse mortgage, evaluate your spending habits and develop a long-term plan to avoid facing financial instability later. Before entering the mortgage, also discuss your decision with your health care providers and Social Security representative to determine whether your benefits will be impacted. This would be a rare occurrence, since the IRS considers reverse mortgages to be loan advances, not income, but it's always a good idea to check.