Last Resort: FINRA Urges Homeowners to Be Wary of Reverse Mortgages |
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Written by U.S. Insurance News
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Sunday, 23 March 2008 |
The Financial Industry Regulatory Authority (FINRA) has an urgent message for homeowners: Don't automatically fall for the allure of a reverse mortgage.
FINRA recently issued an Investor Alert notifying homeowners over the age of 60 to consider all of their options before tapping into their home equity to obtain more income for their retirement years, or to fund a risky investment.
"Reverse mortgages are an extremely costly way to fund an investment," cautioned Mary L. Schapiro, CEO of FINRA. "Homeowners need to consider all the risks and explore all of their options before taking out a loan that may prematurely deplete their home equity, which is often a homeowner's most valuable asset and most precious source of retirement security."
A reverse mortgage, which is an interest-bearing loan secured by the equity in a home, can be helpful to homeowners having trouble meeting expenses. However, as the FINRA alert warns, these loans can jeopardize one's financial future.
The FINRA alert, "Reverse Mortgages: Avoiding a Reversal of Fortune," explains how these "rising debt" loans allow borrowers to convert their home equity to cash to be used for any purpose. Because these loans are being aggressively marketed as an easy, cost-free way for retirees to finance lifestyles or to pay for risky investments, the alert advises homeowners who may take this type of loan to use the funds wisely.
If they are approached by a financial professional to do a reverse mortgage in order to fund a particular investment, investors should remember that all investments carry risk and costs-and the higher the promised return, the higher the risk. In some cases, those who sell the reverse mortgages may profit from the sale of the proposed investment, giving them double the incentive to talk someone into a loan he may not need.
FINRA cautions investors to consider reverse mortgages generally as a last resort.
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