Myths & Realities of a Reverse Mortgage

As with many financial products, reverse mortgage loans can be complicated and there are several misconceptions about how a reverse mortgage works. Consumers widely misunderstand Reverse Mortgages which has created an unnecessary stigma about Reverse Mortgages that persist to this day. Reverse mortgages are a well-regulated financial solution and for the right borrower, a reverse mortgage can be a safe and strategic resource for meeting needs, improving lifestyle, adding flexibility to a retirement plan, and in many cases peace of mind.

Myth: The lender owns your home.
Fact: The lender does not own your home. You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in your home, maintaining your home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance. (1)

Myth: Your home must be free and clear of any existing mortgages to qualify for a reverse mortgage.
Fact: Your home does not need to be free and clear of mortgages. Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments. (1,2)

Myth: Once loan proceeds are received, you pay taxes on them.
Fact: Reverse mortgage loan proceeds are not considered income or otherwise (though you must continue to pay required property taxes). However, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

Myth: The borrower is restricted on how to use the loan proceeds.
Fact: Once any existing mortgage or lien has been paid off, the net loan proceeds from your HECM loan can be used for any reason. Many borrowers use it to supplement their retirement income, defer receiving Social Security benefits, pay off debt, pay for medical expenses, remodel their homes, or help their adult children. You worked hard for this asset and prudence, along with budgeting, should be the proper approach to enjoying proceeds received from your HECM loan.

Myth: Only financially challenged borrowers apply for a reverse mortgage.
Fact: While a reverse mortgage can be a key resource during emergencies and times of need borrowers are increasingly using their home equity as a means to unlock more possibilities in their later years such as, using the proceeds for travel, leisure activities, consolidating debt home improvements, or fund a living inheritance. The perception of the reverse mortgage is changing as many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life. (2)

Myth: My family says that I won’t be able to leave my home to my heirs.
Fact: Your heirs can still inherit your home if you choose that option. If your heirs want to keep the home they will have to pay back the loan balance including the funds you used plus accrued interest and fees. Or, they can sell the home to repay the loan. Once it’s repaid, they retain any remaining equity.

Myth: You are not allowed to sell your home if you have a reverse Mortgage.
Fact: You can sell your home if you wish just like any other mortgage loan. You must pay off the reverse mortgage at the closing of the sale. There are no prepayment penalties if you choose to pay off your loan early or make loan payments.

Myth: Your children or heirs will be responsible for repaying the loan when you die.
Fact: A reverse mortgage is a non-recourse loan, meaning that the lender can only be repaid from the proceeds from the sale of the home and not more than the value of the home. That means that even if the home decreases in value the maximum payment amount can only be up to the value of the home.

If you have additional questions about a Reverse Mortgage please call, text, or email Mike or Liz today for a no-obligation discussion about the right choice for you.

1) You must still live in the home as your primary residence, continue to pay required property taxes, and homeowners insurance, and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.

2) Your HECM loan will accrue interest together with the principal that needs to be repaid when the loan becomes due.

For these loan programs, we are a Mortgage Broker only, not a mortgage lender or mortgage correspondent lender. We will arrange loans with third-party providers but do not make loans for these programs. We will not make mortgage loan commitments or fund mortgage loans under these programs.
HECM fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option, which is one full draw at loan closing and no future draws. Adjustable interest rate mortgages provide for five, flexible payment options, and allows for future draws. Initial distribution caps will apply.
There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowner’s insurance, and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and are subject to change.

This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation. Borrowers should seek professional tax advice regarding reverse mortgage loan proceeds.