(CBS News) You've probably seen the commercials with actors like James Garner and Henry Winkler for reverse mortgages. They are a way for older people to borrow money, but they're also complicated and not right for everyone. Now, the Federal Housing Administration is announcing changes in how they are regulated
In a regular mortgage, you make monthly payments to the lender. In a reverse mortgage, you receive money from the lender, and generally don't have to pay it back for as long as you live in your home. The loan is due, with interest, when the borrower dies moves or sells the house. Heirs typically sell the house, pay the balance and keep what's left. Anyone 62 and older is eligible, and the home must remain your primary residency.
"What everyone has to keep in mind, you still have to pay insurance and taxes on your house when you're living in it," said CBS News Business and Economics correspondent Rebecca Jarvis.
The government has recently instituted new regulations on reverse mortgages to help assist people who need them, but according to Jarvis it might not do the trick. She said that the house will go back to the bank, or is sold when you pass away or move. There are also similar concerns to that of suprime loans in that senior are talked into loans they cannot afford.
"The new rules are part of the solution, but the customer at the end of the day, just like with anything, have to protect themselves," she said. "These rules are how the government backs up the mortgages, but $2.8 billion were lost on these mortgages last year. That's a huge amount of money. One in 10 of them were in default last year. Borrowers put their nest egg at risk; ultimately, the nest egg is their home."
The biggest catch is that they have a lot of fees, and may disqualify you for other government incentive programs such as Medicaid and Supplemental Security Income.
"Some people see it as a good idea because it's an opportunity to take money out, if you're in retirement and you need extra money to pay the medical bills. People see it as an option but it doesn't necessarily apply for everyone," said Jarvis. "It can be very costly. The fees are one of the biggest issues with these mortgages, and because they're very high you could pay as much as $12,000 in fees on a $300,000 mortgage and when all is said and done, that's a lot of money."
For Rebecca Jarvis' full interview, watch the video in the player above