Elder attorney column: reverse mortgages a ‘last resort’

A Pennsylvania newspaper column warns that a reverse mortgage can lead to a foreclosure, but describes certain situations in which the loan could be recommended

An elder law attorney in Pennsylvania says that reverse mortgages should only be used by a senior when there are few or no other options available to stabilize finances or make ends meet, saying that there may not need to be anything done to tap into a home’s equity, according to a column appearing in The Sentinel.

“A reverse mortgage should be a last resort,” writes Kelly Walsh Appleyard, an attorney with Keystone Elder Law P.C. in Mechanicsburg, Penn. “The risk of a reverse mortgage is that the borrower, who is typically an older person in a vulnerable position, will find themselves suddenly without a home. That can happen if they violate the terms of the reverse mortgage, at which point the lender can foreclose.”

The loan’s terms need to be narrowly vetted in a reverse mortgage transaction, the column says.

“The lender will only make payments to the borrower for a set time period, and limit the amount the homeowner can owe to the lender,” the column says. “The homeowner must maintain homeowners’ insurance, pay the property taxes and continuously reside in the house. You can default on a reverse mortgage by violating any of the terms or going over the limit.”

The column also describes potential situations that might arise from a failure to pay property taxes and homeowners insurance. While the column points out that these terms are also true of a traditional mortgage, it characterizes a reverse mortgage’s default provisions by saying they “go further” than those of a forward mortgage.

“You could be maintaining all of the financial requirements, but default due to a health problem,” the column says.

There are situations in which a reverse mortgage would be an advisable option for a senior to enter into, but the column describes such circumstances as “narrow.”

“It would be a good tool for someone who needs to turn that equity into an income stream for their final years,” the column reads. “This should be someone whose remaining life expectancy is less than the term of the reverse mortgage. Also, this person should have a caring support system and appoint a Financial Power of Attorney who will make sure the other bills for the house continue to be paid. The family should also have an understanding of how the reverse mortgage will impact their loved one’s estate.”

However, there could be better alternatives for making use of a home’s equity, if it needs to be leveraged at all, the column says.

“There may be other options specific to your circumstances,” the column reads. “Another possibility is that, despite what celebrities say in commercials, you might not need to do anything at all with the equity in your home.”

Read the column at The Sentinel.

Editor’s note: RMD presents this information to keep the reverse mortgage industry informed about what is being discussed about the product category outside of the industry’s information ecosystem.

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