Reverse Mortgages Explained…Myths and Facts
Although there are advantages and disadvantages of a reverse mortgage, there are also many misconceptions about reverse mortgage loans. Here are some popular reverse mortgage myths and facts brought to you by SeniorClarity, your source for reliable reverse mortgage information on the Web!
Reverse Mortgage Myth 1: The reverse mortgage lender will own my home.
Fact:
You and your heirs/estate retain ownership of the home. The lender's interest is limited to the loan balance and they will never take control of the title.
Reverse Mortgage Myth 2: I will owe money if the reverse loan amount exceeds the value of my home.
Fact:
A reverse mortgage is a “non-recourse” loan, meaning that you as the borrower can never owe more than your home’s value, regardless of the loan balance.
Reverse Mortgage Myth 3: My loan terms will change if my loan is sold.
Fact:
The terms of your reverse mortgage loan can never change. In the end, all reverse loans end up with Fannie Mae. At closing you sign legal documents, ensuring that your loan's terms cannot change.
Reverse Mortgage Myth 4: My heirs will be burdened.
Fact:
The home equity conversion mortgage loan may be repaid from the sale of the home or by refinancing the existing reverse mortgage. All remaining equity belongs to the heirs/estate. You have six months (in some cases up to one year) to repay the reverse mortgage.
Reverse Mortgage Myth 5: My SS/SSI, Medicare/Medicaid benefits will be affected.
Fact: A reverse mortgage does not affect these or most other means tested benefits. If you receive Supplemental Security Income payments, you must spend the proceeds from the reverse mortgage. In short, the monthly cash advances need to be fully spent every month and not accumulated. It is advisable to check with your local area agency on aging since programs do vary by state. If you are managing finances for elderly family member(s) be sure to talk to your reverse mortgage lender for more information.
Reverse Mortgage Myth 6: I must be in good health to qualify.
Fact: There are no health requirements.
Reverse Mortgage Myth 7: I must have a steady income to qualify.
Fact: There are no income or credit requirements.
Reverse Mortgage Myth 8: I must be debt-free to qualify for a reverse mortgage.
Fact: You can still qualify if you have an existing mortgage or other home-related debt. However, the proceeds of the reverse mortgage must be used to pay off those debts.
Reverse Mortgage Myth 9: I will owe more in taxes.
Fact: Reverse mortgage proceeds are tax-free because they are considered borrowed funds.
Reverse Mortgage Myth 10: Reverse mortgages only benefit desperate and "cash poor" senior citizens.
Fact: It is true that some seniors may have greater need than others for cash or an increased monthly income. It is also true that a reverse mortgage can be an excellent financial estate planning tool for any senior that has sizeable equity in their home.
Do you have other questions about reverse mortgages and how they fit into estate planning and trusts? Contact us by clicking here for free, no-obligation information and one of our specialists will explain reverse mortgages to you.