Published On: August 24, 2017
CFPB REPORT WARNS THAT TAKING OUT A REVERSE MORTGAGE LOAN CAN BE AN EXPENSIVE WAY TO MAXIMIZE SOCIAL SECURITY BENEFITS
Reprint from The Consumer Financial Protection Bureau (CFPB) (8/24/2017) CFPB issued a report warning older consumers about taking out a reverse mortgage loan in order to bridge the gap in income while delaying Social Security benefits until a later age. In general the costs and risks of taking out a reverse mortgage exceed the cumulative increase in Social Security lifetime benefits that homeowners would receive by delayed claiming.
“A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” said CFPB Director Richard Cordray. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.”
Costs of a reverse mortgage can exceed the lifetime benefit of waiting to claim Social Security: The average length of a reverse mortgage loan borrowed at age 62 is seven years. By age 69, borrowers that pursue this strategy will pay approximately 60 percent in costs (interest, insurance, and fees) for the amount borrowed to bridge the gap in income while delaying Social Security benefits until a later age. Because reverse mortgages are an expensive way to delay Social Security, the report found that by age 69, the costs of a reverse mortgage loan are $2,300 higher than the additional cumulative lifetime amount the typical borrower will expect to gain from an increased Social Security benefit.
- Decreased home equity limits options to handle future financial needs: A reverse mortgage reduces the equity homeowners have in their house. Homeowners who wish to sell their homes after taking out a reverse mortgage are particularly at risk because the loan balance is likely to grow faster than their home values will appreciate. This could limit options for moving or handling a financial shock. For example, a 62-year-old homeowner who has a home worth $175,000, with a 2 percent appreciation per year, will have 61 percent of the home’s total value available as equity at age 67. By age 85, this homeowner will have only about 16 percent of equity in the home if they sell the house.
CFPB Releases Consumer Guide and Video Explaining Reverse Mortgages
The Bureau released the following guide and video to help prospective borrowers and their families understand how reverse mortgages work so that they can make an informed decision before agreeing to borrow.
The CFPB Report
The “Reverse Mortgage Discussion Guide”
Reverse Mortgages – Federal Trade Commission – Consumer Information
A very good video explaining reverse mortgages: https://youtu.be/L89d3faoFGw
About the Author: Diane Drain
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
“You folks are the BEST OF THE BEST in Arizona.” M.H.
You and Jay are the best attorneys I have ever had or needed and thank God for the Honorable Robert Gottsfield in recommending you folks – I would have never made it through the entire process without you and Jay and God Bless you both always and stay in touch as well. You folks are the BEST OF THE BEST in Arizona.
“My only regret is that I didn’t find Diane sooner.” K.H.
I can’t say enough good things about Diane. The way she handled my not typical circumstances was amazing. I was very nervous to start the bankruptcy process but Diane just has a very comforting way of explaining the whole process. My only regret is that I didn’t find Diane sooner. If you find yourself in a financial situation that you can’t correct on your own, please Call Diane Drain as soon as possible.
“Filing for bankruptcy can be a stressful life event” R.A.
Filing for bankruptcy can be a stressful life event, and selecting the right attorney can add to this stress. Diane and Jay were a pleasure to work with, and it is obvious that they are passionate about helping people get their life back on track. I would highly recommend them if you need a bankruptcy attorney.
Related Posts
Published On: February 23, 2022
WHAT HAPPENS AT THE END OF A COVID-19 FORECLOSURE FORBEARANCE? Can servicers demand a large balance? Generally, the servicers should not be demanding full payment following a COVID forbearance. There [...]
Published On: July 29, 2021
CFPB Releases Online Tool to Help Renters and Landlords Access Federal Assistance New resource helps renters and landlords find state and local programs distributing federal rental assistance funds WASHINGTON, D.C. [...]
Published On: July 16, 2021
Arizona Residential Eviction Actions Procedures – effective July 15, 2021 IT IS ORDERED that the following procedures are applicable to eviction actions governed by Arizona Revised Statutes, Title 33, filed [...]
Published On: May 16, 2021
There is so much mis-information about a forbearance of home mortgages during COVID-19. Know your options before making a decision not to pay your mortgage. (11/18/21 UPDATE - see summary of foreclosure alternatives) This [...]
My intention is to put you back in control of your life
Start with $0 down*. We provide affordable payment plans.