Reverse Mortgage

The 8 myths of Reverse Mortgages:

1. The bank takes your home in a reverse mortgage

Reverse Mortgage Lenders are not in the business of owning homes — they wish to make loans and earn interest. The homeowner keeps the title to the home in their name. What the lender does is add a lien onto the title (just like a regular-forward mortgage) so that the lender can guarantee that it will eventually get paid back the money it lends.

2. Heirs will not inherit the home

The estate inherits the home as usual, but there will be a lien on the title for the amount of the reverse mortgage loan plus any accrued interest and mortgage insurance premium.

A reverse mortgage is a “non-recourse” loan which means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

3. The homeowner could get forced out of the home

The HECM reverse mortgage was created specifically to allow seniors to live in their home for the rest of their lives. The homeowner will not be evicted or foreclosed on as long as the borrower meets the obligations of the loan.  For example, the borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

4. Social Security and Medicare will be affected

Government entitlement programs such as Social Security and Medicare are usually not affected by a reverse mortgage. However, need-based programs such as Medicaid can be affected. It’s best to consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits.

5. Someone can outlive a reverse mortgage

The reverse mortgage becomes due when all homeowners have moved out of the property for 12 consecutive months or passed away.

6. The homeowner pays taxes on a reverse mortgage

The proceeds from a reverse mortgage are not considered income and are not taxable.

7. There are large out-of-pocket expenses

Absolutely not true.  Typically, the majority of lender closing costs and fees can be financed into the reverse mortgage loan.

8. The reverse mortgage is a “very expensive” loan

Absolutely true-before the FHA began insuring reverse mortgages.  Now most all reverse mortgages are approved and insured by the FHA.