Myths/Rumors of Reverse Mortgage
MYTH #1- “THE BANK WILL OWN MY HOME IF I/WE DO THIS!”
FACT: With the HECM, it is your house, you are the owner, you have full control, and you stay on the deed as the owner of the home as long as you: pay your property taxes and your pre-existing homeowners insurance, keep your name on title, live in your home as a “primary residence”, maintain the home, and if you own a condo or townhome, the HOA dues. Even if the loan balance became $1,500,000 and your house is worth $1,200,000, it is still your home, you do not have a mortgage payment, and you are insured by the FHA. You can sell, refinance, or pay off the loan anytime you want. It is a loan like any other forward mortgage except you don’t have to make mortgage payments. In 2013, the Federal Housing Administration (FHA) — which oversees the HECM reverse mortgage program — introduced sweeping changes to protect homeowners from losing their homes due to missed tax or insurance payments or confusion about their obligations.
MYTH #2- “I/WE RISK LOSING OUR HOME IF WE GET A REVERSE MORTGAGE!”
FACT: A reverse mortgage is designed to help you stay in your home, not lose it. You remain the owner, you keep the title, and you can live in your home as long as you like — provided you continue to pay property taxes, homeowners insurance, and maintain the property.
Since 2015, updated FHA rules have made reverse mortgages safer than ever, requiring lenders to assess each borrower’s ability to meet these obligations before approval. These safeguards dramatically reduce the risk of default or foreclosure.
MYTH #3- “MY HEIRS WILL GET STUCK WITH THE DEBT, OR RISK LOSING MY LEGACY I/WE WANTED FOR THEM!”
FACT #1: Your heirs can keep the home, refinance to a forward mortgage, or sell within the 6-12 month period after you or the youngest borrower are no longer in the home as a primary residence. Most of the time there is equity left in the home with 3-6% appreciation of home values every year, but if there is not, this is a “non-recourse loan” meaning the bank has no recourse and you are covered by the mortgage insurance which protects your other assets.
FACT #2: In many cases when borrowers opt for the line of credit option which compounds interest at the same rate as the effective loan rate, they end up having more money that accumulated from the line of credit and a home for the heirs.
MYTH #4: “I/WE WILL END UP OWING MORE THAN WHAT THE HOME IS WORTH AND MY SCHEDULED PAYMENTS WILL STOP”
FACT: With the HECM, if the home was “underewater”, you are not responsible for paying it back, you will continue NOT having to pay the mortgage payment, AND, if you opted for a line of credit and/or payments from the portion of your equity, you will continue receiving your monthly payment, even if the loan balance was greater than the value of the home. This is because you are covered by the FHA insurance mortgage insurance premium which you invested in originally. It is secure and you earned it.
MYTH #5: “THE REVERSE MORTGAGE IS ONLY WHEN ONE IS DESPERATE OR BROKE”
FACT: Not true. Many folks have learned thsi creates ample opportunities. This relieves any financial stress, and creates a more peaceful life which you earned and provides security. It also allows you to gauge your future easier. People are simply living longer, want a better lifestyle, and get worried about outliving retirement, and/or want to supplement income. People also would love not to pay a mortgage payment every month where they could spend monthly payment on something else.
There are times when it is an emergency, for example: my family used the reverse mortage to assist with my Grandmothers caregiving costs which they thought would be coverde by the life insurance rider my Grandma and Grandpa purchased when they were younger. Well…it turns out, that policy was not all it was expected to be and Grandma also had really good genes and lived very long, so the reverse mortage helped tremendously in continuing to pay the caregiving costs so my Grandma could stay in her home where she wanted to be.
I would not be doing this if I genuinely did not think it could help folks. Give me a call for more questions.