CFPB Report Warns About Reverse Mortgages

09/20/17 – The Consumer Financial Protection Bureau (“CFPB”) issued a report containing a warning to older consumers regarding the costs and risks of a reverse mortgage.

The CFPB’s report focused on the potential risk faced by older borrowers who attempt to delay their Social Security benefits until a later age by subsidizing their income with a reverse mortgage loan. The report argues that taking out a reverse mortgage can be an expensive way to maximize Social Security benefits.

According to the CFPB, a reverse mortgage can be used to replace the income that a homeowner would otherwise receive in Social Security benefits in the years between the minimum benefits age (age 62) and their full benefits age or later. When the beneficiary delays their benefits, the beneficiary will see a permanent increase in their monthly Social Security payout. Based on current life expectancies, a delay would mean an increase in the overall payout over the course of the beneficiary’s life time.

However, the CFPB warns that the costs of a reverse mortgage can exceed the benefit of waiting to claim Social Security. The CFPB also warns that taking out a reverse mortgage to delay accepting Social Security benefits will likely diminish the amount of home equity available to borrowers. As a result of the diminished equity, borrowers that seek to sell their homes may have limited options financially.

CFPB Press Release; Report.