15 Reverse Mortgage Myths Revealed

While reverse mortgage loans are becoming more popular there are still a number of fallacies about them that need to be cleared up. These misapprehensions are not the only ones you will find. The ones listed in this article however are the most prevalent. This article will focus on clearing up the top 15 reverse mortgage myths.
1. The bank assumes ownership of the property. This is one of the biggest myths around. Reverse mortgages are loans. Like all other loans the borrower retains possession of the properties title.
2. The property must have zero debt on it. A property with an outstanding mortgage can still qualify. Any outstanding mortgages balances can be paid with the reverse mortgage loan.
3. Costs are high. All closing costs can be financed thus cutting the dreaded out of pocket expenses usually associated with a normal mortgage loan. These loans are regulated by the FHA so only HUD approved fees are allowed.
4. Payments are made monthly. This type of loan does not require payments, only when the loan is due or other circumstances arise such as the borrower moves out or passes away.
5. The borrower will receive the funds immediately. The borrower can choose how they want to receive the payments through the following options: Lump-sum, monthly payments or as a line of credit drawn as the borrower sees fit. Borrowers can also choose to receive funds in a combination of the above mentioned ways.
6. Home Equity Conversion Mortgage (HECM) – loans are handled by the Federal Housing Authority (FHA) or government. These loans are privately issued. The government’s role is only to ensure against default and nothing more.
7. Only certain homes are eligible: Nearly every single home type is eligible for this type of mortgage. In the case of mobile homes they must have been built within the last 30 years. The borrower must own the land the mobile home sits on. The mobile home must be placed on some kind of permanent foundation. Some condos and townhouses are also eligible.
8. A reverse mortgage can be outlived. As long as one homeowner continues to live in the home as their primary residence and continues to pay taxes and insurance the loan will not become due.
9. You must have a good credit score to qualify. There are only two primary requirements you must meet to qualify. The borrower must be at least 62 years of age and the property must be their primary residence. Your credit history or financial status is of little importance to the lender.
10. Loan balance will exceed property value. It is possible in some instances that the value of the loan is higher than the value of the property. The difference is forgiven. Heirs or the estate are not responsible to make up the difference.
11. Only financially strapped seniors would consider getting a reverse mortgage. The idea that only desperate seniors in need of cash are the only ones who get these loans is completely incorrect. Many seniors find these loans are a great financial planning tool using the money to enhance their retirement years.
12. Once the Loan is due the bank will sell the property. Once the time comes for the loan to be re-paid you or your heirs have a choice of paying off the balance and retaining the property or selling the home and using the proceeds to pay the loan off. The lender will not force you to sell the home.
13. My Medicare or social security income will be affected. Social Security and or Medicare benefits are not impacted by receiving this type of loan because they are not viewed as income.
14. There are rule requirements governing how the loan monies can be used. There are no rules that tell you how or where you can spend the money you receive. Those decisions are entirely up to you.
15. Once the home is sold any leftover funds go to the lender. Once the loan has been repaid any and all leftover funds go back to the borrower or to their heirs.
Many of these reverse mortgage myths consumers have come from fear or misinterpretation about how these loans work. Once a consumer understands the benefit’s they can make better informed decisions.