Reverse Mortgage Myths

Perhaps it’s the popularity of those late-night TV infomercials. You know the ones: a celebrity spokesperson (strategically sitting in front of a bookshelf) leans into the camera and starts a conversation with that elusive 62-year-old and up demographic.

Or maybe it’s the stigma throughout the years as being a “last resort” loan for those in need. A lifeline, so to speak.

People have been very suspicious of reverse mortgages for decades. And yet, even with all the efforts to alter the perception of reverse mortgages as a viable financial tool for people during their retirement years, misconceptions persist.

Let’s clear the slate by debunking the top five myths surrounding reverse mortgages.

Myth #1: The bank will own my home.

Reality: No, they won’t. Even with a reverse mortgage, your home is still yours. Your name(s) will remain on Title if you meet the requirements of the loan, you will retain ownership and keep Title to your home. A reverse mortgage eliminates the requirement to make principal and interest payments. The requirements of the loan are quite simple: the home must be your primary residence, you must maintain the home, you must pay your property charges (homeowners insurance, taxes, HOA fees), and you must honor the terms of your loan documents. The only way you could lose your home is if you don’t meet one of these requirements.

Myth #2: I have a mortgage so I can’t get a Reverse.

Reality: Don’t have your home fully paid off? If you have good equity in your home, you may still qualify for a reverse mortgage. Even if you don’t think you have enough equity in your home, a reverse mortgage could be a great financial tool moving forward. An expert loan officer can help you determine what’s right for your situation. And take this to heart: statistics show that many homeowners over the age of 62 still have a mortgage and owe money on their primary residence. So, if you don’t own your home outright you are not alone.

Myth #3: Reverse mortgages have large out-of-pocket expenses.

Reality: As with any traditional mortgage, reverse mortgages do have costs and fees. Many of these fees are the same fees you would pay for any mortgage. The good news is that you can roll most of them into the loan, which greatly reduces your out-of-pocket expenses. We’ll provide you with a detailed cost breakdown that explains the different interest and pricing options, closing costs and fees, which can vary based upon the type and size of the loan.

 Myth #4: I can’t leave my house to my children.

Reality: With a reverse mortgage, you can still leave your home to your children. The title will pass to your estate. Heirs can choose to either keep the house by refinancing the existing mortgage balance or if there is still remaining equity, sell the home and keep what remains from the balance of the loan and the proceeds of the sale. During your reverse mortgage, you always have the option to make elective payments to pay down or minimize the impact of the accrual of interest on your loan. This would protect equity to pass on. In the case that home values go down, know that you can never owe more than the value of the home at the time your estate must repay the reverse mortgage. These are non-recourse loans and your heirs are protected from inheriting debt from the reverse mortgage.

Myth #5: Reverse Mortgages are only for desperate people.

Reality: Not so. A reverse mortgage can be a true path forward in retirement. You’ll find that there are many people today who are using reverse mortgages for a variety of reasons. The most common use is to pay off an existing mortgage. While some might use this tool to defer collecting social security or as a safety net for emergencies, others are using home equity to enhance their life with greater flexibility and options in retirement. Some might want to realize a business idea, travel, help family members with education expenses, make charitable donations, or even use the funds for buying additional real estate. The beauty is this is your hard-earned asset. A reverse mortgage can be an effective tool to help add choices to your retirement years. 

The more you know the real truths about reverse mortgages, the better you’ll be able to determine if one is right for your situation.