Why Are There So Many Myths About Reverse Mortgage Loans?
When reverse mortgage loans first came about, there were private versions that took advantage of retirees. But over the years, especially after 2014, the Federal Housing Authority (FHA) and the United States Department of Housing and Urban Development (HUD) have added many layers of protections for consumers.
Now, reverse mortgages are among the safest loans available, but many people–even financial and real estate professionals–aren’t aware of all the pro-homeowner regulations.
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Here Are the Top Myths and Facts
I will be giving up the deed to my home and I won’t own it anymore.
Fact:
The deed always stays in your name—you can live in the home, remodel it, or sell it and keep any equity that is left if you move.
I could lose my home and be forced to move.
Fact:
The Federal Housing Administration (FHA) guarantees that you can stay in your home for as long as you live as long as you maintain the home and pay taxes and insurance.
If my spouse is under 62 when I get a reverse mortgage loan, they will lose the house if I pass away.
Fact:
As long as your spouse is on the title, they will be included in the loan and will retain ownership of the home just like you had.
Only people that are in financial trouble should get a reverse mortgage.
Fact:
Many people use reverse mortgage loans as capital for investments, cash to make retirement more enjoyable, cash to buy a better home, part of tax mitigation strategies, and broader financial plans, including endowments for heirs.* That said, reverse mortgage loans can certainly help people out of financial rough spots.
I can’t get a reverse mortgage loan because I can’t afford to make monthly payments.
Fact:
You will have no monthly payments for as long as you live in the home—no matter what. You will just pay the taxes and the insurance like you do now. You can make payments if you want to for tax purposes or to manage equity, but it’s completely optional.
I want to sell my house and move, so a reverse mortgage loan isn’t right for me.
Fact:
You actually can use a reverse mortgage loan to purchase a new home. A reverse mortgage loan gives you the opportunity to potentially increase your purchasing power, while eliminating monthly mortgage payments as long as you pay taxes and insurance, and maintain the home.
Your house must be fully paid off to qualify for a reverse mortgage.
Fact:
You can use a reverse mortgage to pay off a current mortgage provided the available FHA borrowing limit is high enough to cover your balance.
My children could get stuck with a big mortgage debt if I live too long or my home loses value.
Fact:
No one is ever required to pay more than the market value of their home. If your loan was to exceed the value of your home, the FHA Mortgage Insurance Fund (FHA/HUD) pays the balance.**
When you pass away, the bank takes possession of the house—not your children.
Fact:
Your heirs will have the right to sell your house and keep any profits left over after the mortgage balance is taken care of. They will also have the option to either purchase the home for 95% of its appraised value or the balance of the loan, whichever is lower.
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*This advertisement does not constitute tax or financial advice. Please consult your tax and/or financial advisor for your specific situation.
**There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.