November 21st, 2013 12:02 PM by Richard T. Cirelli
Myths and Misconceptions about Reverse Mortgage Loans
I’ve been helping seniors take advantage of the benefits Reverse Mortgages for many years. It’s been perhaps the most misunderstood mortgage program by many people and while the program isn’t for everyone, many seniors realize the advantages once the program is properly explained. I hope to 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 even after obtaining a reverse mortgage loan so long as you pay taxes and insurance and otherwise comply with loan terms. 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 loan requires that I make monthly payments.
Not True - 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 loan.
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. Although your heirs will not be responsible for repayment of the loan, 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 loan has no minimum income, credit, or health requirements. However, effective January, 2014, the borrower does need to demonstrate that they have the wherewithal to pay their property taxes and homeowners insurance on the property. Lenders do look at credit histories to ensure borrowers can meet these obligations.
Myth #5: To qualify, my home must be debt free and paid off "Free & Clear."
False - You may have an existing mortgage or other debt on your home. The mortgage or debt, however, must be paid off first with the proceeds of the reverse mortgage loan. In fact, many people get a reverse mortgage loan just for this reason: to get rid of their monthly mortgage payments forever. . Myth #6: There are restrictions on how the Reverse Mortgage loan proceeds may be used.
False - Reverse mortgage loan proceeds may be used for virtually any purpose. The most common uses are to pay off debt, help their kids, make ends meet, to have a financial reserve and to pay for medical expenses.
Myth #7: If I do a reverse mortgage loan, I will have nothing for my kids.
False - Your property may continue to appreciate and you pay interest on only the smaller 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 or selling your home. . .Myth #9: If my lender changes or sells my home, my loan terms can change.
False - A reverse mortgage is secured by two Deeds of Trust. Once executed, the terms are defined and cannot be changed. . Myth #10: My Social Security, Medicare/Medicaid benefits will decrease.
False - Generally the money from a reverse mortgage loan is considered borrowed money and not income. For some programs, monthly draws must be spent and not accumulated, but for most, the money is not considered disqualifying. Please consult with an advisor or your local Agency for Aging for your specific situation. Medicare eligibility may be affected.
Myth #11: Only Low-Income Seniors get Reverse Mortgage loans:
False – Although some seniors will have a greater need than others, most simply prefer to be free of monthly mortgage payments to maintain or improve their quality of life. It is commonly used as a tool for long-range financial planning.
Myth #12: I cannot get a Reverse Mortgage loan if I have an existing mortgage:
False – If your house isn’t paid off, the proceeds you receive from the reverse mortgage is first be used to pay off any existing mortgage debt.
Reverse Mortgage loans have been a main product of my business for several years. There are many options and variations to the program. It takes the expertise of a mortgage professional that is well-versed in the program to obtain the proper guidance and service. Please give me a call to discuss yours or your client’s specific needs and how to benefit from a Reverse Mortgage loan.