Make Sure a Reverse Mortgage Is Right for You

In August 2005, Financial Freedom required her to pay for home repairs under the reverse mortgage agreement, effectively forcing her to withdraw $26,592 from the annuity. Munoz filed a class action suit against Financial Freedom in November 2007, according to the documentation.

Financial Freedom, which is a unit of Indymac Bank, said in a statement that these allegations are "baseless and without merit." The lender declined to comment on Munoz's filing specifically, but pointed out that it does not sell, or partner with insurance representatives to sell, annuities to reverse mortgage borrowers.

In another example, Carol Anthony told the Senate Special Committee on Aging on Dec. 12 that her mother Betty bought a reverse mortgage in April 2006.

Although the 80-year-old woman had money in other accounts and had only drawn down $19,000 of her $150,000 home equity line of credit, she trusted a salesman who had been introduced to her by an 86-year-old friend. He made a number of promises, including that she would have no risk of losing her home or be rushed into signing anything she didn't understand.

Among other things, the woman ended up with a reverse mortgage that charged her many thousands of dollars in closing fees and required home repairs, compounding interest daily.

According to AARP, a 74-year-old borrower living in a $300,000 home could pay around $30,000 for a typical reverse mortgage, half in upfront fees and the rest from ongoing monthly ones for the life of the loan, and not including interest charges.

"It's really not the products that are so much the problem, but the appropriateness" of when people are being advised to use them, says Shawna Reeves Nourzaie, program coordinator at the Fair Lending Project for Seniors at the nonprofit Council on Aging Silicon Valley. "These are the loans of last resort."

Nourzaie recommends that anyone thinking about getting a reverse mortgage avoid problems later by getting good information first, for example from talking to a certified financial planner or tax advisor. You can also find an experienced counselor in your state here. AARP also has a Web site of tips and tools.

If you have any doubts about the fairness of your reverse mortgage, you can email AARP for help.