Consider all options before taking out a reverse mortgage

We've used this space to caution older residents about the pitfalls of taking out a reverse mortgage, pitched by people like former senator Fred Thompson and Henry "The Fonz" Winkler, and now the Consumer Financial Protection Bureau has chimed in.

It's an important issue for our area, where many of us have much, if not most, of our net worth tied up in our homes.

A study of older homeowners found that they were given the false impression by the ads that reverse mortgages are a government benefit and ensure that consumers can stay in their homes for the rest of their lives.

In fact, a reverse mortgage, which allows borrowers to receive cash or a line of credit by tapping the accumulated equity in their homes, has a growing loan balance that comes due when the borrower dies, moves or sells the home, or defaults on other obligations such as insurance or taxes.

While the mortgages are insured by the Federal Housing Administration, they aren't a risk-free government benefit, like some of the advertising seems to indicate.

About 10 percent of borrowers who take out reverse mortgages default on the loans, roughly double the rate of conventional home mortgages.

Reverse mortgage are complicated, and older homeowners may not understand them, or be able to read information about risks and interest rates buried in the fine print.

Cash-strapped seniors who own their own homes may find the idea of a reverse mortgage attractive, there may be better alternatives, such as refinancing, a different type of home equity loan, selling their home to your children or even a private reverse mortgage to their children or other trusted relative.

Before signing on the dotted line, check out all your options with a trusted financial adviser.