Reverse mortgages enticing but the details can be tricky

When you have most of your wealth tied up in your home, it’s referred to as being “house rich, cash poor.”

Many seniors who find themselves in this position may be enticed by the commercials offering salvation. They are wooed by a chance to tap into their home’s equity with a reverse mortgage. Smooth television ads make it appear to be a no-brainer. It’s actually much more complicated.

The most appealing quality of this type of loan is that, unlike with a traditional mortgage, you don’t have to make monthly payments. The lender doesn’t collect until the homeowner moves, sells, or dies. Once the home is sold, any equity that remains after the loan is repaid is distributed to the person’s estate.

To qualify, you have to be 62 or older. The market for reverse mortgages isn’t huge — about 1 percent of all mortgages — but reverse mortgage lenders are likely to pump up the volume in coming years as more seniors retire. For a lot of people, the only source of big money for them is the equity in their homes, says the Consumer Financial Protection Bureau.

In 2013, a typical household had only $111,000 in 401(k) or IRA savings, according to the Center for Retirement Research at Boston College. The center found that too many people are dipping into their retirement accounts during their working years, causing what is called “leakage.”

But a lot of seniors have equity in their homes — totaling about $3.84 trillion, according to one mortgage industry survey. They can tap into that equity by selling or taking out a home equity loan or line of credit. But selling isn’t an option if they want to stay put, and they would have to make payments on the line of credit or loan.

Given those options, it’s no wonder a reverse mortgage can be appealing.

The consumer bureau, in a report analyzing 1,200 reverse mortgage complaints received from 2011 to the end of last year, found that many people are confused about this type of loan.

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