This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Are Reverse Mortgages a Fonzi Scheme?

BOSTON ( TheStreet) -- Henry Winkler and other celebrities well-known to older Americans are pitching "reverse mortgages" heavily on TV these days, but are these loans for homeowners 62 and up a good deal -- or just a Fonzi Scheme?

" A reverse mortgage will eliminate your monthly mortgage payments and give you tax-free cash from the equity in your home!" Winkler, who played Fonzie in the 1970s sitcom Happy Days, gushes in one spot for lender One Reverse Mortgage. "Take control of your retirement today!"

Other aging celebrities doing reverse-mortgage ads include 1950s singer Pat Boone and actor and former U.S. senator Fred Thompson.

Reverse mortgages give property owners 62 or older an easy way to pull equity out of their homes.

Take out one of these loans and the bank will give you either a lump sum of cash or send a modest amount of money each month.

You don't have to pay any principal or interest as long as you live in your house. The lender will collect all money due after you die or move away and your place is sold.

Reverse mortgages work especially well for retirees who either don't have money to make monthly mortgage payments or income to qualify for traditional home-equity loans.

"These products are frankly a lifeline for a lot of baby boomers," says Greg McBride of market tracker Bankrate.com. "A retiree who's really living on a shoestring budget can refinance out of a traditional mortgage and turn what might be an $800-a-month bill into a $250 monthly check."

But the loans also have risks, including:

Loss of equity
Taking out a reverse mortgage means you can't leave your home free and clear to your heirs.

Some unscrupulous loan brokers have even convinced married homeowners to take out reverse mortgages in just the older spouse's name. That means the bank will approve a larger loan amount -- and a bigger sales commission -- but the younger spouse could lose the home when the borrower dies.

The U.S. Consumer Financial Protection Bureau also found that 73% of reverse-mortgage borrowers take most or all of their available equity out as a lump sum.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,156.85 +24.88 0.15%
S&P 500 2,001.57 +2.59 0.13%
NASDAQ 4,562.1890 +9.43 0.21%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs