In the years since we’ve been in business, many myths have been repeated to us from our clients. Even as reverse mortgages became an accepted and normal financial option for seniors, some of the myths still persist.
Here are answers to some of the most common reverse mortgage misconceptions.
“A reverse mortgage is similar to a home equity loan.”
FALSE- A home equity loan requires monthly mortgage payments. A reverse mortgage does not require monthly mortgage payments.
“I’ll have to pay taxes on the money I receive from a reverse mortgage.”
FALSE- The cash coming in from a reverse mortgage is considered loan proceeds, and is therefore not taxable income.
“I will have to transfer legal ownership of my home to the bank in order to get a reverse mortgage.”
FALSE- The borrower retains title to the property. The reverse mortgage lender is simply providing a loan to the borrower that is secured by the home or property. Because ownership of the home is retained, the borrower is responsible for property taxes, insurance and maintenance.
“I’ve heard that I could get forced out of my home.”
FALSE- FHA/HUD reverse mortgages are set up specifically so that you cannot be forced to leave your home. As long as you keep your home as your primary residence, pay your property taxes, pay your insurance and keep it maintained, you may live there as long as you like.
“There are restrictions on how I can use the proceeds of a reverse mortgage.”
FALSE- Any existing debts and liens against the property are paid first from the reverse mortgage loan proceeds. The remaining proceeds are yours to use in any way you desire, from paying off bills to home improvements, dream vacations or helping your children buy their first home. There are no limitations.
“If I have an existing mortgage, or other real estate secured debt, I am not eligible for a reverse mortgage.”
FALSE- Potential borrowers who have an outstanding first mortgage, or some other type of real estate liens (for example, a home equity loan or tax lien, etc.) still may qualify for a reverse mortgage. In this event, the proceeds from the reverse mortgage must first be used to pay off this debt. Many borrowers enjoy a new financial freedom by eliminating their mortgage or home equity loan payments.
“Only broke, desperate people take out a reverse mortgage.”
FALSE- Reverse mortgages have become an effective financial tool for retired homeowners in every income bracket. Used wisely, a reverse mortgage is a smart way to cash in on untapped wealth and it can make a positive impact on the lifestyles of all types of borrowers.
“I am denying my children their inheritance.”
FALSE- Borrowers can leave their home to their heirs. A reverse mortgage is a non-recourse loan. This means that the lender can only seek repayment through the sale of the property. The heirs have the option to pay off the balance of the reverse mortgage (principal plus accumulated interest and MIP) and keep the home, or sell the home and use a portion of the proceeds to pay off the reverse mortgage. The lender cannot look to the estate for repayment of the loan.
“If one of us should pass away, the other will face losing our home.”
FALSE- Reverse mortgages are set up so that the loan does not become due until both borrowers have left the home.
Call Lineage Lending today and let us answer any questions about the reverse mortgage process.
Learn how a reverse mortgage can transform your retirement into the lifestyle you deserve.
