Reverse Mortgage Myths

As Reverse Mortgages have increased in popularity, so have the myths about these unique loans. While there’s better information available today, many seniors and their adult children who are exploring reverse mortgages still encounter a host of misconceptions. Here’s a look at common myths and the facts:
1. The Bank takes the house or the borrower can lose the house.

With a Reverse Mortgage, the borrower retains title throughout the life of the Reverse Mortgage. Only a Specific Maturity Event can cause the Reverse Mortgage to become due. As long as one of these events does not occur, the Reverse Mortgage would not become due. The continued payment of Property Taxes and Homeowners Insurance as well as maintaining the property are extremely important and the failure to do so could trigger a Maturity Event. Others of importance are making sure that you are living in the property as your Principal Residence. Once the last surviving spouse or borrower passes or permanently moves out of the home, a Maturity Event would be triggered causing the Reverse Mortgage to become due. Other Specific Maturity Events could also apply. Call us for a detailed list. Should a Maturity Event occur, the borrower, heirs or estate could make arrangements with the lender to sell or refinance the property.

2. The home must be paid off or debt-free to qualify.

Reverse Mortgages convert home equity into cash. As long as there is sufficient equity in the property, the homeowner may be eligible for a Reverse Mortgage. In fact, many Seniors use a Reverse Mortgage to pay off existing mortgages and liens. The Senior borrower continues with the financial obligations of paying the Property Taxes and Homeowners Insurance. The property must also be maintained in a satisfactory manner.
3. When a Reverse Mortgage becomes due, the bank sells the home.

The borrower is in control of the home and retains title, not the bank or lender. While it’s common for the borrower or heirs to sell the home to repay the loan, it’s a decision they make. They might instead refinance the home to repay the loan.
4. It is cheaper to move to a smaller house.

Seniors need to analyze their costs carefully before making this assumption. Selling a home and moving can be expensive. The typical real estate commission of 6 percent, combined with moving expenses, can make finding a new home a serious financial undertaking.

5. Children want the home or don’t feel comfortable with their parents obtaining a Reverse Mortgage.

Seniors should talk with their family about Reverse Mortgages. Often adult children are pleased their parents have a financial solution available to help them live more independently and financially secure.

6. The borrower could owe more than the house is worth.

You (or your heirs) may retain the home when the Reverse Mortgage becomes due, by paying the entire loan balance. The balance may be greater than the value of the home. This loan is insured by the FHA, and this protects you from any loss that may occur on the loan. This is a “non- recourse” loan to you. Please call us for certain specific scenarios.
7. Reverse Mortgage impact Social Security and Medicare benefits.

Under the Consumer Financial Protection Bureau, a Reverse Mortgage may affect eligibility for some governmental programs, specifically SSI and Medicaid. To verify if your Social Security or Medicare benefits could be affected, please consult with your Financial and or Tax Professional.
8. There are restrictions on how the money is used.

Actually, there are no restrictions, and proceeds from the Reverse Mortgage can be used for any purpose – travel, to pay off debt, make purchases or just live more comfortably.
9. Once proceeds are received, taxes will need to be paid.

Since the proceeds are already the borrower’s money, they are tax-free.
10. Reverse mortgages are only for seniors in need or for the “house rich, cash poor.”

Reverse mortgages are excellent financial planning tools that have been used by homeowners for all walks of life to enhance their retirement years.
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