REVERSE MORTGAGE MYTHS
The Reverse Mortgage Program is sometimes misunderstood. Here are some of the truths about common reverse mortgage myths.
TRUTH: You or your estate continue to retain ownership of your home. The lender’s interest is limited to the outstanding loan balance and they do not take control of the title.
TRUTH: The Reverse Mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from the proceeds of the sale of the property. You will never owe more than the value of the home.
TRUTH: There are NO income, credit or physical health requirements to qualify for a Reverse Mortgage.
NOT TRUE: At the closing of a reverse mortgage any existing current mortgage will be paid in full. And you will never have a monthly payment. That means whatever amount you have been paying as a mortgage payment will be yours to keep each month. No more payments.
TRUTH: A reverse mortgage is a great way to get some needed home repairs accomplished without increasing monthly payments.
As part of the process of getting a reverse mortgage a property appraisal is performed. In addition to estimating the home value the appraiser gives a listing of any repairs that would be required. Usually, these repairs can be performed after the reverse mortgage is in place and paid for by the proceeds of the loan.
TRUTH: Even though some seniors may have a greater need than others for the cash or monthly income, the Reverse Mortgage can also be an excellent financial or estate planning tool to enhance the quality of life and better manage their assets.
NOT TRUE:The homeowner retains title to the property and can choose to sell the home at anytime.The homeowner retains all future appreciation in the home.
Not True. Your reverse mortgage will payoff any current mortgage or equity loan. In fact many people get a reverse mortgage to payoff their current mortgage and eliminate their monthly payment forever.
Not True. There are never any monthly payments. Payment of taxes, insurance and general upkeep of the home are the only responsibilities of the homeowner.
False: A reverse mortgage is only a lien on your home. Like a regular mortgage once the house is sold by you or by your estate the loan balance is paid in full and the remaining equity passes on to you or to your heirs.
False: Because you still own your home, and because it will traditionally continue to appreciate in value, it is very difficult to use up all of your equity. In fact, in many cases, depending on how much money you use, the amount of equity you have may increase.
False: If you sell your home, you lose one of the largest and most secure investments you probably have. You would lose 6-10% of your home's equity in sales costs alone. After selling, you would most likely have to pay rent or some other type of monthly payment that would eat away at your savings. For most seniors, moving from their home is too physically and emotionally difficult.
False: The federal government determines the interest rate for HUD Reverse Mortgages. This means that no matter where you go for your Reverse Mortgage, the rate will be nearly the same. You want to work with a lender that is helpful, knowledgeable, professional and that doesn't try to pressure you.
False: You can use the Reverse Mortgage to pay off the balance of your current mortgage or equity loan. By doing so, you will "free up" the money you used to use for monthly payments on the old loan.
False: There are no credit, income asset or physical health requirements to qualify for a Reverse Mortgage. If you are 62 or older and you own a home - you qualify.
False: Even though a Reverse Mortgage has up-front costs which can be folded into the loan, the alternatives of selling your home, moving and relocating combine to result in a much greater expense.
False: Your home doesn't have to be in perfect shape, however if there are minor repairs that are required by the lender, they can be done after the closing in most cases, or paid at the time of closing should advance repairs needed.
False: Even though a traditional loan with monthly payments might work well in some cases, in general a traditional loan will cost more. In fact, over a 10 year period, a traditional loan of $75,000 will cost you an average of $30,000 more than a Reverse Mortgage. In addition, the traditional loan has the risk of foreclosure, which a Reverse Mortgage does not.
