My parents' reverse mortgage was a huge mistake and here is why

Last summer my mom and dad took out a reverse mortgage on their house in Cleveland to cover some medical bills. They thought it would give them peace of mind since no monthly payments were due. But what the loan officer didn't explain clearly was how the interest adds up fast. After just 18 months they owed $23,000 more than the house was worth. The fees and insurance premiums are eating up their equity like crazy. Now we are looking at selling the place just to break even or walking away entirely. My advice is get a second opinion from a HUD counselor before signing anything. Has anyone else here dealt with a reverse mortgage that went south?

3 comments

3 Comments

ivan_harris2d ago

My parents did the same thing back in '08 with their place in Akron. They ended up owing $28k more than the house was worth after just two years. I remember trying to explain compound interest to my dad and he just stared at me like I was speaking ancient Greek. Guess that's where I get my math skills from, huh? The HUD counselor idea is solid, I wish someone had pushed them to do that before they signed.

thomas_price3d ago

Man that's rough, I feel for you and your folks. The thing people don't get about reverse mortgages is the interest compounds daily, so even though you're not making payments, the debt is growing faster than most houses go up in value. I've heard the same story from a few friends whose parents did this - they thought it was free money but really it's just a loan with a timer on it. Definitely second that HUD counselor advice, and maybe look into a home equity line of credit instead if you still need cash. It's way more straightforward and you can pay it down as you go.

grant1552d ago

Cleveland's a funny place for this stuff. I had an uncle who took out a reverse mortgage on his house in Parma back in 2012 and he ended up moving in with my cousin because the interest ate up everything he thought he had. He kept saying the bank owed him money, but they just showed him a piece of paper with the numbers and he gave up. @ivan_harris I get what you mean about explaining compound interest to older folks. My dad still thinks his savings account pays him by magic. The real kicker was my uncle trying to sell the place and finding out the fees and insurance had ballooned so bad he had to pay the bank $4,000 just to walk away.