Reverse Mortgage Myths updated for 2013 – What are the HECM Myths
In this article you will learn all the misconceptions/myths of the HECM reverse mortgage for 2013, this is an extensive report for anyone who is interested in learning about the most popular myths of the reverse loan.
Did you know the popular media and news outlet downplay the benefits of the reverse mortgage as a way to garner attention and to draw even more confusion about this retirement option. We dont believe that is the right way to go about showcasing the negatives of the program, we aim to bring you a unbiased look at the myths of the hecm reverse mortgage while also showing you how this program can benefit you.
FACT: Over 600,000 seniors have taken a reverse mortgage loan since its inception over 20 years ago – can this many seniors be in the wrong? get a reverse mortgage quote today.
The HECM program has drawn a lot of negative attention from its earlier days when it really was an expensive option for seniors to release or borrow from their homes equity (this program has been available for 22 years+). FHA (Federal Housing Administration) the government agency that insures the loans has done a tremendous job of making this program an effective solution for seniors. The changes leading up to todays HECM reverse mortgage has added regulation and safety measures for both lenders/consumers/heirs/estate, has dramatically reduce the fees involved, and introduced guidelines which allows seniors to qualify into the program (there are no income or credit scores required).
FACT: The HECM Saver reverse mortgage offers dramatically reduced loan origination fees in the form of a reduce mortgage insurance premium from 2% to only .01% – this is a huge savings which makes the HECM more competitive in the market comparing it to a HELOC or traditional home equity loan. While the news/media continues to state that the program has high fees this is not true at all, since with a HECM saver the costs/fees are actually lower than most alternatives.
The reverse loan program is now finally shaking off it myths and misconceptions, and is finally getting positive media attention – we have even seen financial planners come around to the idea. RMLD offers a free service that comparison shops top HUD approved lenders in order to find you the best and lowest reverse mortgage rates (not to mention the no fee reverse mortgage options)
Reverse mortgages how they work - here is an overview of all the HECM Myths – we will go into more details about each type of myth further down this page.
- Myth The bank will own your home.
- Myth Your children will be held responsible for paying the loan back.
- Myth Reverse mortgage lenders take advantage of seniors.
- Myth You need good income and credit scores to qualify for reverse loan.
- Myth To qualify, you must own your home free and clear.
- Myth You won’t have any equity left in your home to leave for your heirs.
- Myth Once you get a reverse mortgage, you cannot sell your home.
- Myth You will see a reduction in your Social Security income.
- Myth Reverse mortgages are only for seniors that are poor.
- Myth Closing costs are way too expensive.
- Myth The loan is due and payable when the first borrower dies.
- Myth When your reverse mortgage loan is due, the lender will sell your home.
Why are there so many myths/misconceptions about the HECM programs:
FIrst of all the concept of how does a reverse mortgage work is strange to most seniors since there is no mortgage payment due – this alone adds alot of confusion (there is no other program that does not ask/require a payment). Financial advisors are mainly against this option for one simple reason that there is no money in it for them. Financial planners and advisors are getting better at explaining how the program works and introducing this program as a way to keep the seniors funds lasting longer instead of it being an emergency withdraw situation. The media/news writes negatively about for much of the same reason – lack of knowledge about the works of the program, in 2013 both the media and advisors have done a much better job of presenting the information in a non biased fashion. This program can get rather tricky to understand thus it is important that each case be reviewed individually - if you would like to get an estimate of how much you can receive from your equity use our free reverse mortgage calculator.
Lack of knowledge in the retirement space for seniors – not that they are to blame as most are not taught retirement planning in throughout their lives and it is a very hard subject to implement correctly anyways even with the knowledge. Even those seniors who had a rock solid retirement plan with diversified income and other assets have been tremendously affected by the recent great recession. With the recent financial meltdown seniors trust levels and knowledge about retirement has been skewed since so many have lost their wealth in the collapse of the stock market, bond market, real estate market – there really is no safe investment anymore, but if you utilize the reverse mortgage appropriately you can actually protect the equity in your home and retire more comfortably without the burden of payments.
The Bank Owns Your Home
TRUTH: The bank does not own your home. There is no difference in the reverse mortgage compared to other loans, in all cases the borrowers own and keep title to the home, but are responsible for the terms set in the contract/loan. As a reverse mortgage loan borrower you will be responsible to pay for property taxes, insurance, and maintenance on the property.
“We have to reconfirm to seniors and their kids all the time that with a HECM reverse mortgage the bank does not own your home, you keep ownership title and you can pass the property down to your heirs or sell at any time.”
MYTH Your Children Will Have to Pay Your Loan
TRUTH: Your Heirs are not mandated to pay back any of your loans including the reverse mortgage, they can if they choose to buy the property ( they can use a mortgage if the like does not have to be paid with cash). Any equity which is left after the sale of the property will belong to your children and not the bank – this myth bank owns my home – well no the bank does not own your home and your kids wont have to pay anything back.
“Our clients are very concerned with leaving behind their kids/estate some equity or a property, the HECM reverse mortgage will not be paid back by your children unless they want to keep the home ( at that time they can sell or refi) any equity which has built up will belong to them ( or whoever you leave the property to).”
MYTH To Qualify You Need Good Income & Credit Scores
TRUTH: You don’t need to have a good credit history or income for a HECM reverse mortgage, this program was designed so seniors who don’t have either can qualify as long as they meet the basic requirements. Qualifications that matter to reverse mortgage lenders
- must be 62 or older
- must own a primary residence and live in the home (live in the home for at-least 183 days out of the year)
- you must have equity in the property (check with http://zillow.com/ to find out how much your home can appraise for)
- never have defaulted on government debt
“FHA is a government body that insures these mortgages, seniors do not have to worry about having income or high credit scores to qualify for this mortgage. Unlike traditional forward refi, if you meet the above requirements then you will receive a reverse mortgage loans, and the best part is that there are no monthly payments.”
MYTH You Must Own Home Free and Clear Myth:
TRUTH: You can have a mortgage on the property just as long as there is enough equity to pay off the mortgage and to give you the money you are requesting (either lump sum, monthly checks, or line of credit). The more equity you have and the older you are the better or the more likely you are to receive a reverse mortgage loan.
“If you have a home that is paid off you are ahead of the crowd, many seniors well into their 70′s are still paying for a mortgage, with the HECM reverse mortgage you can still qualify even if you currently have an existing mortgage.
MYTH Closing Costs Are Way Too Expensive Myth: Closing costs are way too expensive.
TRUTH: Reality is that the closing costs have substantially decreased and with the new HECM Saver reverse mortgage closing costs are now actually cheaper than many of your other retirement options. The standard HECM reverse mortgage has an insurance premium of 2% upfront which adds to the cost of the loan, the overall fees of the reverse mortgages cannot exceed $6,000. The fees to the reverse mortgage are very similar to the costs of any mortgage, you need to do comparison shopping in order to save money.
“Our company is responsible for comparison shopping your reverse mortgage loan across top lenders and banks, in order to secure you the best interest rates, closing costs, and closing time.”
MYTH You Wont Have Any Equity Left in the Home For Heirs
The best way to make sure there is abundant equity left for your heirs to use as little equity as possible ( this can be accomplished if you have a steady income, or a large savings) most likely you have entered retirement and are depending on social security checks. Most seniors are in a position where the costs have gone up so much, but their income is not going up (social security), seniors are having to help their grown kids, while worrying about their homes equity. Most likely home prices will keep falling another 10-15% as we still have many foreclosures to go through, also many adjustable rate mortgage will adjust in the years to come. With this we should explain that a reverse mortgage can be viewed as an insurance policy, since you will receive a lump sum or your proceeds upfront, if home prices go down substantially or just enough you wont have to worry about loosing all of your equity.
Myth When your reverse mortgage loan is due, the lender will sell your home.
TRUTH: Your Heirs/estate will get the right to either keep the home or sell the home to pocket any profits, the lender will only sell the home if no one claims it after 12 months. The Lenders don’t want to sell your home but instead they only want their loan repaid – again any equity which is in the home will belong to your family and not the bank.
When the HECM reverse mortgage loan becomes due, you or your heirs will decide how to pay off the loan. You or your heirs can keep the home and use funds from elsewhere to pay off the full outstanding balance, or you can sell the home and use proceeds from the sale to pay off the loan. If you are able to sell your home for more than the loan balance, you or your heirs keep the difference.
“Media gets this wrong all the time, the reverse mortgage is not the problem but a solution, the problem is that seniors go into to retirement without being prepared for all of the expenses that comes with aging. The HECM reverse mortgage helps seniors who are not able to have a standard quality retirement by allowing them to access the homes equity without having to make monthly mortgage payments.”
websites we recommend and more articles for those interested in learning even more: