The Reverse Mortgage Program is perhaps the most misunderstood mortgage program. While the program is not for everyone, many seniors realize the benefits once the program is properly explained. Hopefully this following will dispel some of the myths surrounding this program.
Myth #1: The lender will take ownership of your home.
False – You and your family or your estate continue to retain ownership of your home after obtaining a reverse mortgage. The lender does not take control of the title. The lender’s interest is limited to the outstanding loan balance.
Myth #2: The reverse mortgage requires that I make monthly payments.
False – There are never monthly mortgage payments with a reverse mortgage. The borrower is responsible for payment of property taxes, insurance, and general upkeep of the home and nothing more.
Myth #3: My children will be held responsible for repayment of a reverse mortgage.
False – The lender can only derive repayment of the reverse mortgage loan from the proceeds of the sale of the property. Even if a catastrophe strikes and the value of the home is reduced, you or your estate can never owe more than the value of the home. Your heirs will not be responsible for repayment of the loan balance in excess of the market value and they will have the option of repaying the loan and keeping the house for themselves.
Myth #4: You need a certain level of income, credit, or health to qualify.
False – A reverse mortgage has no minimal income, credit, or health requirements. However, the borrower does need to demonstrate that they have the wherewithal to pay their property taxes and homeowner’s insurance on the property.
Myth #5 To qualify, my home must be debt free and paid off “Free and Clear.”
False – You may have an existing mortgage or other debt on your home. The mortgage or debt, however, must be paid off with the proceeds of the reverse mortgage. In fact, many people get a reverse mortgage just for this reason: to get rid of their monthly mortgage payments forever.
Myth #6: There are restrictions on how the Reverse Mortgage proceeds may be used.
False – Reverse Mortgage proceeds may be used for virtually any purpose. The most common uses are to pay off debt, help one’s children, make ends meet, have financial reserves, or pay for medical expenses.
Myth #7: If I get a Reverse Mortgage, I will have nothing to leave my children.
False – Your property will continue to appreciate and you pay interest on only the amount borrowed. Since no payments are made throughout the term of the mortgage, the accrued interest is paid at the end when the house is sold or your estate is settled. There are several options on how to take the money – lump sum at closing, as a line of credit, or a combination.
Myth #8: If I get a Reverse Mortgage, I cannot sell my home.
False – If you decide to sell your home, the reverse mortgage is like any other loan that must be paid off at closing. There are no restrictions on prepayment or penalties for paying off your loan of selling your home.
If you feel you might benefit from a Reverse Mortgage either to purchase or to refinance and enjoy a better quality of life, contact us to see how we can help.