While reverse mortgages have been around for decades, many people still don’t understand how they work. This confusion can lead to people dismissing them as a viable financial option, without really taking the time to learn more and separate the myths from the realities. While it’s difficult to pinpoint where the misconceptions came from, we’ve compiled a list of potential suspects. Before taking their reputation at face value, it’s worth taking some time to investigate where it came from. After all, a reverse mortgage loan might be just the answer you’ve been looking for. But you’ll have to give them a chance to find out.
They Make Up a Small Percentage of Mortgages
Though many people take reverse mortgages every year, they are the least common type of home loan. According to the U.S. Department of Housing and Urban Development (HUD), just over 32,991 home equity conversion mortgages (HECM) were made in 2023. This number represents less than one percent of all mortgages made in the same year.
Because they represent such small fraction of home loans, most people are less familiar with how they work than their conventional counterparts. This lack of familiarity may be responsible for people taking small amounts of information and expanding them into incorrect assumptions.
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Unflattering Media Coverage Contributes
Considering that reverse mortgages are such a small fraction of mortgages, the only contact or awareness many people have with them comes from a story on the news. Though the media seeks to be fair and balanced, it’s also true that negative stories make more compelling television than a story of someone who is happy with their reverse mortgage.
And, like the general public, most journalists are likely to be unfamiliar with reverse mortgages. As a result they may introduce confusion when covering the story of these loans. This is not to say that the negative stories covered in the media are untrue. But they tend not to accurately reflect the bulk of reverse mortgages made every year and contribute to why reverse mortgages are so misunderstood.
The media tends to focus on stories of reverse mortgages gone wrong. In reality, a vast majority of reverse mortgage borrowers report satisfaction with their mortgages.
- Reverse mortgage complaints to the Consumer Financial Protection Bureau (CFPB) were less than 2% of 29,100 complaints received in 2022.
- A 2018 Journals of Gerontology survey of 1,088 adults found that HECM borrowers surveyed had higher financial and housing satisfaction three to five years after getting a HECM than their nonborrower counterparts.
Financial Advisors Don’t Bring Them Up
Financial advisors may not always proactively talk about reverse mortgages with their clients. Yet, studies show that clients expect their advisors to introduce them to financial products in their best interest. A 2022 Harris Poll survey of 2,000 U.S. homeowners found that 90% of respondents believed their advisor would bring up a home equity loan if appropriate. Still, only 29% of respondents with advisors had discussed equity options with their advisors.
There are multiple reasons why a financial advisor would not bring up the topic of reverse mortgages with their clients. One reason, includes that they, like many other people, don’t know a lot about them. Regardless of why, just the fact that they don’t may lead potential borrowers to think that there is a more meaningful reason their financial advisor hasn’t addressed the topic.
The Name Doesn’t Help
Not only are reverse mortgages less widely understood than their conventional, “forward” counterparts, just the name “reverse” may add a layer of confusion and potential negative associations. Whether forward-looking, forward-moving, or forward-thinking, anything associated with the word “forward” naturally feels positive. In contrast, those things named “reverse” tend to be a bit more suspect.
When you break down how a reverse mortgage works, the reason behind the name makes sense. Instead of a borrower paying off their loan plus interest in installments over a set term, a reverse mortgage works in reverse. Though whoever named reverse mortgages had logic on their side, it seems they didn’t consider how the name might impact first impressions.
Get the Facts
Regardless of where the misunderstandings that surround them come from, it’s worth looking deeper into reverse mortgages. Before dismissing these financial tools based on something you saw on television or a friend said, take some time to learn the facts. Finding out the truth about reverse mortgages can also help you decide if one is right for you.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
