Reverse Mortgages can literally be life changing to those that utilize them. However, whenever a loan product appears too good to be true, suspicions arise. While many of the myths and misconceptions surrounding Reverse Mortgages are not true, senior homeowners considering obtaining a reverse mortgage should perform their due diligence and consult with a specialist to learn about the pros and cons of Reverse Mortgages.
Myth: The homeowner loses title to their home.
Truth: The homeowner retains title to the property. The Reverse Mortgage, like any loan secured by a dwelling, is only a lien against the property.
Myth: Since the loan negatively amortizes, the loan balance could exceed the value of the property making the borrower and the heirs responsible for the deficiency when the Reverse Mortgage become due and payable.
Truth: Reverse Mortgages are “non-recourse” loans, which means that neither the borrower nor the heirs will be responsible for any deficiency that might arise.
Myth: The heirs will not receive any of the remaining equity when the Reverse Mortgage becomes due and payable.
Truth: When the last Reverse Mortgage borrower dies or ceases to live in the house for more than 1 year the borrower or heirs can either pay off the Reverse Mortgage balance or sell the home and pay off of the Reverse Mortgage balance from the proceeds of the sale. Any amount above and beyond the Reverse Mortgage payoff will go to the borrower/estate of the borrower.
Myth: Homeowners that have not paid off their house cannot get a Reverse Mortgage.
Truth: This is not true, as long as the borrower meets the loan-to-value eligibility requirements for a Reverse Mortgage the borrower may still qualify for a Reverse Mortgage.
Myth: Borrowers with conventional loans secured against their property cannot obtain a Reverse Mortgage.
Truth: Although technically true, borrowers can still obtain a Reverse Mortgage if some of the proceeds of the Reverse Mortgage are used to pay off the existing mortgage at the time of closing.
Myth: A reverse mortgage can cause you to be evicted from your home.
Truth: As long as the borrower continues to pay for the property taxes and homeowner’s insurance the borrower may live in their home for the rest of their life. No one has the ability to force the borrower from their home.
Myth: If the borrower outlives their life expectancy the Reverse Mortgage lender can make the Reverse Mortgage due and payable.
Truth: As long as the borrower follows the Reverse Mortgage program guidelines, the Lenders cannot make the Reverse Mortgage “Due and Payable.” So whether the borrower lives to be 85 or 105, the borrower may continue to live in their home without fear that the lender will take their home from them.
Myth: Reverse Mortgage lenders take advantage of senior homeowners.
Truth: Seniors that have been “scammed” or mislead by Reverse Mortgage lenders are the exception to the rule. The Reverse Mortgage loan program requires the borrower contact an independent 3rd party HUD approved counselor that explains how Reverse Mortgages work as well as the pros and cons of obtaining a Reverse Mortgage. A prudent senior will involve his or her family in the Reverse Mortgage consideration process so that everyone close to the senior is aware the policies and procedures related to the Reverse Mortgages.
Myth: There are restrictions on how money received from a Reverse Mortgage can be used.
Truth: There are no restrictions on how a Reverse Mortgage can use the proceeds from the Reverse Mortgage. However, borrowers should be prudent on how the Reverse Mortgage proceeds are used. Used properly a borrower can elevate their quality of life by supplementing their monthly income.
Myth: Reverse Mortgages are only utilized by desperate seniors that did not plan well for retirement.
Truth: Reverse Mortgages can be used as a financial planning tool when preparing for retirement. While it is true that some seniors will need the benefits of a reverse mortgage more than others, many seniors that utilize Reverse Mortgages have good financial health.
Myth: If a borrower obtains a Reverse Mortgage the borrower cannot sell their home.
Truth: Borrowers can sell their home at any time. There are no restrictions against selling the property and paying back the principal balance of the Reverse Mortgage.