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Nikki Langendorf Sunnyvale Real Estate Expert         408 896 4221 nikki@sunnyvaleresidential.com


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Dangers of a Reverse Mortgage

Reverse mortgages can destroy your future

Posted on October 24, 2012 by Nikki.


Reverse mortgages were designed to help the elderly who lack liquidity. If they own Sunnyvale real estate, odds are that they have quite a bit of equity in their home.  If they are retired with little income coming in, they might struggle to make ends meet. A reverse mortgage on their Sunnyvale home allows them to take a loan out on their home’s equity, and they would ideally never have to pay the loan back during their lifetime. Instead, the loan would be paid off when they pass away and the home is sold. The proceeds from the home’s sale is then used to pay off the loan.

Unfortunately, the topsy-turvy housing market recently has resulted in many big lenders leaving this reverse mortgage industry. In their wake, a lot of smaller lenders flooded the market, and some of them prey on abusive loan practices. A handful of dangers accompany a reverse mortgage, and you need to be aware of them if you or someone you know is considering one

First, if two people reside in a home, it is probably prudent to have both names listed on the reverse mortgage deed. In a New York Times article, http://www.nytimes.com/2012/10/15/business/reverse-mortgages-costing-some-seniors-their-homes.html?ref=realestate&_r=1&, a tragic situation was described. A widow had to bury her husband, and shortly thereafter, she was notified that she had to come up with a lump sum of almost $300,000 to pay off a reverse mortgage loan. She was not on the deed, and the loan had to be repaid in full when her husband passed away.

Second, you must be aware of the fees, interest, and other charges associated with a particular reverse mortgage. While liquid money from a reverse mortgage can be beneficial, one shouldn’t ignore expenses associated with one. By all means, shop around and compare!

Third, reverse mortgages can result in a lump sum loan or a line of credit. In a lump sum loan, you are assessed interest charges every month even if you didn’t have a need for the entire amount. These interest expenses can really add up over time.  A line of credit might be a better option.

To be fair, reverse mortgages can be a lifesaver and certainly serve a very useful purpose for equity rich and cash poor Sunnyvale home owners. Just be aware of all the pros and cons, shop around, and make sure you are aware of all the pitfalls before taking such an important step.

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