An 86-year-old Oregon woman was faced with potentially not having a place to live when the state said it was going to buy her house so it could tear the property down and make way for a new traffic project earlier this year. What was the problem? The woman had taken out a reverse mortgage, so the bank would have received the pay-off for the house. The homeowner would have been left with no home and no money to pay for another place to live.
Unanticipated problems like these with reverse mortgages are likely to occur again. Reverse mortgages are touted as a way for older Americans to tap the equity in their homes without having to move out. But the process is complicated, and there are downsides, most notably the fact that when you die, the lender (and not any of your heirs) gets ownership of the property. As The New York Times reports, the federal government is looking at revising the rules and protections attached to reverse mortgages, which are expected to become increasingly popular as an aging population looks for ways of tapping its home equity to cover the increasing expense of retirement.
As The Oregonian reports, the state came up with a solution in this case. However, this just highlights the fact that there can be unanticipated consequences with reverse mortgages. If you’re considering one for yourself, don’t just talk with the lender, because its main focus is selling a product: consult an independent financial adviser with experience in this issue, who can inform you fully of the potential pitfalls and represent your interests.