Top 10 Myths Reverse Mortgage Loans
Every day we receive phone calls and emails from many senior homeowners who are not aware of the basic facts about a reverse mortgage loan. This retirement solution is federally backed by the government, making it a safe solution for senior homeowners, and providing financial stability/income needed to retire comfortably. There is so much misleading information on the HECM reverse mortgage by the media and those who have a bias towards using them. Recently the program has become much more accepted as a mainstream solution for those looking to eliminate their debts and or increase their retirement funds longevity.
Myth: The Bank Will Own and Keep My home.
Fact: This could not be further from the truth, with a reverse mortgage you keep ownership to the house, and the bank can only take your property if the homeowner’s insurance/property taxes are not paid. Some 600,000 seniors have taken out a reverse mortgage; they could not all be wrong. The program is available for those seniors who have built up enough equity in the home but may need additional income to supplement their retirement income. If you have a mortgage balance now, the reverse can eliminate the payments thus increasing the amount of money you have available each month. Banks are not in this business to take your home, and the US government is increasing restrictions and stepping up protection for seniors. The majority of the bad media surrounding this program has been from seniors who have NOT paid their insurance/taxes and technically defaulted on their loans. This would have been the case even if no mortgage were on the property. This is not an issue with the reverse mortgage but a larger issue with retirement planning and longevity.
Myth: My kids will be responsible for paying for the mortgage.
Fact: Not true, after you move out for consecutive 12 months, the property needs to be either refinanced or sold in order to pay off the reverse mortgage. Your children will not be held responsible as reverse mortgages is a non recourse product which does not allow lenders to collect your debts from others. The US government insures the HECM reverse mortgage which makes up most of the market share. Assuming that the home's value decreases over time (and the reverse mortgage is increasing with time) there could be a time when the balance of the mortgage exceeds the value of the house. If this were the case, the kids could either buy the home for 95% of the appraised value and or just walk away since there is no equity left for them. Their parents have utilized the equity in their retirement that is normal for most. Those kids who will inherit equity will do so even with the reverse mortgage. It all boils down to how much the parent utilizes the equity while they are alive and how much appreciation the home has to its value over time. Typicall, with home appreciation keeping up with the interest rate on the loan, the amount of equity left over will be the same percentage as the start of the loan date.
Myth: I will have to pay taxes on any income earned.
Fact: The money you receive from a reverse mortgage is not taxed since it is technically the equity you built up in the home with taxed dollars. The money you have access to is also not restricted in any way. You are allowed to spend those funds as you wish. Please be aware of financial advisers or annuity agents selling the dream of taking the funds to re-invest, this typically ends in a loss of the initial capital.
Myth: I will still have to make mortgage payments or similar payment to banks.
Fact: The reverse mortgage is not a traditional mortgage in the sense that instead of you paying the bank, the bank pays you. You will not make payments to the bank, never. If you are interested in making payments, you are allowed to without any fees or restrictions.
Myth: I need to own my home free and clear before taking a reverse mortgage
Fact: This is not true, and the reverse mortgage loan you receive will be used to pay-off you existing mortgage, this is the most typical use of the loan. You will need to qualify for the program. One of the main factors is that you have enough equity built up to pay off the existing loan and absorb closing costs.
Myth: There is the possibility of me facing foreclosure.
Fact: There is no possibility of you facing a foreclosure since there are no payments to make on the mortgage loan. You are responsible for taxes and insurance, but this is the case even without an HECM loan.
Myth: If I become too old the bank will simply kick me out of the home.
Fact: With a hecm reverse mortgage you are allowed to live in the home and receive income from the bank for as long as you live. The bank is not able to kick you out of the home since the reverse mortgage is federally backed, so no worries there. With tenure payment, the bank will pay you for as long as you live, very similar to an annuity. The best part about that option is that it is not an investment, but you are guaranteed a certain rate of growth to help your money keep growing as you age.
Myth: My credit score and Income will not allow me to qualify.
Fact: Unlike a traditional mortgage a reverse mortgage is not going to take these factors into account when deciding whether or not to approve your application. You need to be 62 years or older and have equity in your home to qualify. HUD has plans to change the requirements later on this year and one of the factors which they may introduce is the credit score or income requirements. For seniors who have equity built up, but don't have the supporting income, now is a great time to get a free quote. For those who are having credit difficulties, the lender may have to create a set aside fund that will take a portion of the monies you would receive and set it aside while not granting you access to it.
Myth: Reverse mortgage is a scam.
Fact: Reverse mortgages are federally insured and backed financial products that are now a necessary tool in the retirement planning. These mortgages are not scams and lenders are working hard to fight against crooks and scammers involved in this business for your protection.
Myth: There won't be any equity left for my heirs.
Fact: Not true, this depends on how much you borrow today, how much equity you have in the home, and the % growth of real estate over the next 5-20 years which is hard to predict. There are many who have taken out reverse mortgage and when they passed away their estates were left with a nice sum to live their lives.
About Reverse Mortgage Lenders Direct
Reverse Mortgage Lenders Direct, is a leading online comparison website for homeowners over the age of 62, who are interested in comparing reverse mortgages quotes from top lenders. We advocate and educate seniors about their reverse mortgage options and ultimately try to reduce their costs through our network of exclusive reverse mortgage lenders.
"Even financial advisers have a hard time explaning the facts of this program. Don't be fooled by the myths, learn the truth today."
For more information do no hesitate to contact our friendly call center staff - calls are toll free 855-999-2293
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