If Considering A Reverse Mortgage, AARP Says Be Careful of Aggressive Salespeople

5/26/2008

posted by N. Sioris

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AARP, one of the principal senior protection advocates involved with designing reverse mortgage safeguards, along with HUD, says that seniors need to be very careful if they are being pitched any other financial products at the same time that they are applying for a reverse mortgage.

A 2006 AARP survey found that one in 10 reverse mortgage borrowers had been pitched a financial product along with their loan. Most of the time it was deferred annuities or long-term care insurance policies.

According to AARP, you are unlikely to earn more with an annuity than you are being charged in interest and fees on the reverse mortgage. And what is worse, you may have to pay surrender charges on an annuity that are upwards of 20% if you need to access the money before the surrender period is over. Additionally, sometimes surrender periods are longer than some seniors' life expectancy.

Using a reverse mortgage to pay for long-term care insurance is a little bit harder to evaluate, since it depends on your assets and resources, the cost of the policy and what the odds are that you will end up in a nursing home for an extended period of time. However, according to Donald Redfoot of AARP's Public Policy Institute, "If you've got to borrow to be able to pay for the cost of a long-term care policy, then you're probably not a good candidate for one."

No one knows for sure, how widespread these sales tactics are. However, the Senate Special Committee on Aging was concerned enough that they held a hearing in December, 2007 headed by Senator Claire McCaskill. And, in March the Financial Industry Regulatory Authority (FINRA) issued an investor alert warning consumers to watch out for aggressive salespeople.

This spring HUD will announce new standards for reverse mortgage counseling (which is required for all applicants, prior to getting a reverse mortgage.) The new standards will require a discussion of the implications of using loan proceeds to buy annuities.

Here at Let Your Home Pay You, we are delighted to see more stringent consumer protection policies implemented for the origination of reverse mortgages. The safer this product is for seniors, the healthier the industry will be for consumers and their families.

If you would like to receive a complimentary reverse mortgage loan quote provided by a representative that does NOT sell any other financial products, please request your personalized benefit summary today!