Debunking Reverse Mortgage Myths

Reverse mortgages sometimes get a bad rap and a lot of this is due to the fact that there are many myths surrounding reverse mortgages that are not based in fact. Without fully understanding how a reverse mortgage works, it’s easy to get caught up in “what people say” about reverse mortgages. However, if you know the facts, you’ll be able to look past the naysayers and can understand why reverse mortgages continue to be an attractive option for older Americans who are looking to supplement their income or gain access to extra cash.

ProReverseMortgages (2)_While we know that reverse mortgages aren’t for everyone, we also know that they are not a scam. They are a viable financial tool for homeowners over the age of 62 that want to tap into the equity in their home to acquire more money to be used now, while they need it or can still enjoy it, rather than having to wait until the home is sold, which by then, may be too late.

Here are some common myths surrounding reverse mortgages, along with the facts:

MYTH: If you get a reverse mortgage, the lender owns your home.

This is one of the most common misconceptions about reverse mortgages and it is absolutely not true. Homeowners retain full ownership of their homes when they get a reverse mortgage.   Once the borrowers permanently vacate the home, the home is typically sold to pay off the balance of the reverse mortgage loan. However, if the borrower or heirs wish to retain ownership of the home, they have the option of paying off the loan balance through other means in order to keep the home. If a home is sold, any excess equity in the home over the amount of the loan balance goes to the homeowner or heirs. If a home is sold for less than the loan amount due, then the homeowner or heirs owe nothing additional and the lender will obtain the difference from the mortgage insurance that was paid during the life of the loan. Because the borrower retains full ownership of the home, they also remain responsible for making property tax and insurance payments, and maintaining the home.

MYTH: People only choose reverse mortgages to meet frivolous desires.

While it is possible to use the proceeds of a reverse mortgage to travel around the world or buy a new car, many older homeowners use the money as a way to supplement their monthly income to meet regular expenses.   The good news is that the money obtained through a reverse mortgage is not taxable and does not impact eligibility for Social Security or Medicare.

MYTH: Reverse mortgages should only be a last-resort financial option.

It is never a good idea to wait until financial circumstances are dire to determine what to do about it. While some homeowners may try to turn to a reverse mortgage as a last resort when they need money, there are many others that choose this loan option as part of a sound financial plan. It is best to get the facts about reverse mortgages and other financing options and to discuss them with a trusted and experienced financial professional in order to determine if a reverse mortgage is right for you.

MYTH: Companies offering reverse mortgages are only trying to scam you.

The vast majority of reverse mortgages currently available today are HECMs (Home Equity Conversion Mortgages), which are regulated by the U.S. Department of Housing and Urban Development (HUD). These reverse mortgages require each potential borrower to go for counseling with a third-party to best determine if a reverse mortgage is in the person’s best interests. Even most proprietary reverse mortgages by private lenders require potential borrowers to undergo the same third-party counseling. Lenders offering reverse mortgages are not trying to scam you. They have to meet similar types of stringent regulations that other types of lenders are subject to and provide a viable option for those who wish to tap into the equity in their home without having to pay it back until they sell their home, die or otherwise permanently vacate their home.

This material is not from HUD or FHA and has not been approved by HUD or a government agency.

As with any loan there are risks associated with a reverse mortgage.  The right to remain in your home is contingent on complying with reverse mortgage loan terms and it is possible to lose your home if you do not comply with the terms of the reverse mortgage such as keeping current with property taxes, insurance and maintenance costs.