The Reverse Mortgage Truth: Separating Fact from Fiction
Reverse mortgages are a viable option for many adults age 62 or older who own their primary residence and wish to age in place. Despite the many benefits, there are some misconceptions about reverse mortgages that keep qualified seniors from pursuing them.
Consulting with a Reverse Mortgage Specialist is the best way to determine if a reverse mortgage is right for you, but the following facts may help you to make more informed decisions.
MISCONCEPTION #1: If you get a reverse mortgage, you no longer own your home.
FACT: The homeowner(s) retains ownership of his or her home, and there is no title change. Reverse mortgage loans are secured much like a traditional mortgage; the house is simply used as collateral. But unlike a traditional mortgage, no monthly mortgage payments are required. The borrower must live in the home as their primary residence, pay property taxes/insurance and maintain the property.
MISCONCEPTION #2: You could end up owing more than your house is worth, and that debt would pass on to heirs.
FACT: HECM (Home Equity Conversion Mortgage) reverse mortgages are non-recourse loans and insured by the Federal Housing Administration. This protects older homeowners and their heirs from ever paying back more than the value of their home. As such, no deficiency will pass to your heirs. If there is still equity in the property that can be realized by the heirs.
MISCONCEPTION #3: A reverse mortgage should only be used as a last resort.
FACT: New loan options offer versatility. One popular option is to set up a line of credit as an emergency cash reserve, with the unused portion growing over time. Monthly advances can also be taken to supplement other retirement income. The fact that there are no monthly mortgage payments required, increases the monthly cash flow.
MISCONCEPTION #4: Closing costs are too high.
FACT: There are some new reverse mortgage options that have drastically reduced upfront costs. Just like traditional mortgages, there are third party fees like appraisal, closing attorney, title insurance and there could be a lender origination fee. An FHA Mortgage Insurance premium of either .5% or 2.5% is also included but it depends on how much you need to borrow.
MISCONCEPTION #5: Reverse mortgages loan proceeds will impact your Medicare of Social Security Income.
FACT: Reverse mortgage payments are considered proceeds from a loan and therefore do not affect Social Security or Medicare benefits.