Reverse Mortgage Myths

Seniors researching a reverse mortgage are likely to receive all sorts of advice both pro and con with regards to them.  While being well-intentioned, unfortunately advice is often based on some common myths. 

The editors of ReverseMortgageToday.Org have put together an unbiased list 14 of the most common.   

Myth: If I take out a reverse mortgage the bank will own my home.
Reality:  You will retain title and ownership of your homes. You and can also choose to sell the home at any time as long as the property taxes and homeowners insurance are paid and the house has been properly maintained. 

Myth: When the loan becomes due, the lender will automatically sell my house.

Reality: While it’s most common for the borrower or the heirs to sell the home to repay the reverse mortgage, the choice is up to the borrower or their heirs make. Refinancing the home in order to repay the loan is also a possibility.

Myth: If I outlive my life expectancy, the lender will evict me.
Reality: Reverse mortgage lenders put no time limit on how long seniors can stay in their homes.  Since homeowners still own the property, lenders cannot evict them, provided they follow the program guidelines.

Myth: My children are responsible for the repayment of the loan or they don’t feel comfortable with me taking out a reverse.
Reality: Often, seniors are surprised to know that heirs are happy or relieved to see their parents have a financial solution available to them. Often it is important for them to know that they will not be stuck with the mortgage and they will have the option of keeping or selling the home and pocketing any remaining equity.   

Myth: The closing costs are much higher than for other loans.
Reality: Most Fees are somewhat similar to a traditional FHA mortgages except reverse mortgages include mandatory FHA insurance of 2% of your home’s value plus origination fees that range between $2,500 and $6,000. The origination fees are set by HUD.  These 2 items are what separate reverses from traditional loans.

Myth: I’ve heard qualification is difficult or my income is too low.
Reality: You only need to be only 62 years of age and the owner of your own home. There are no credit or income requirements for this purpose. Because of this, many seniors who do not qualify for traditional financing are eligible for a reverse mortgage. You must not have any federal liens against you.

Myth: I cannot get a reverse mortgage if I have an existing mortgage.                                                                     Reality:  Paying off an existing mortgage is the number one reason most seniors take out a reverse mortgage.

Myth: I or my heirs could end up owing more than the home is worth.  
Reality: The mandated FHA insurance is structured so that the borrower or his estate can never owe more than the value of the home upon repayment. The Federal Housing Administration is an arm of the U.S. Department of Housing and Urban Development (HUD).

Myth: It’s cheaper to move to a smaller home.

Reality: This may be true for some people but seniors may want to analyze the costs associated with Real Estate Commissions and moving costs.  

Myth: A Reverse Mortgage will affect my taxes and social security.
Reality: The proceeds from a reverse mortgage does not affect social security benefits or taxes. It is a loan and not income. 

Myth: I cannot deduct interest on my taxes.
Reality: While you cannot deduct taxes while living in the house – you may deduct interest the year you pay off the reverse mortgage. 

Myth: There are restrictions on how reverse mortgage proceeds may be used.
Reality:  There are no restrictions. The cash proceeds from a reverse mortgage can be used for any purpose. Many seniors use reverse mortgages to pay off debt, help their kids or make ends meet.  

Myth:  Reverse mortgage lenders take advantage of seniors.
Reality: The vast majority of seniors report having a very positive experience with their reverse.  Seniors who have been victims of reverse mortgage lending schemes are extreme exceptions. As a consumer, consider only working with lenders who are members of professional associations. Advice - Borrowers should be very cautious of lenders attempting to cross sell other products.   

Myth:  There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs. Reality: Since we are not a lender, www.reversemortgagetoday.org provides free, unbiased reverse mortgage information.  Also, HUD requires all seniors to work with approved, independent third party counselors before applying.