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Myths and Facts

While often misunderstood and sometimes hyped as scams - due to a rough history - a reverse mortgage loan today can actually be a life changing financial tool that's FHA insured to protect both the borrower and beneficiaries.

The beauty of an FHA Home Equity Conversion Mortgage (Reverse Mortgage) is that you don't pay back the loan because your home equity is actually paying YOU or providing a cash reserve! All you'd pay - according to the loan terms - is property taxes, homeowners insurance, and HOA fees (if applicable). When you pass on, your home's value covers the cost of the loan when your loved ones sell the home, or, if they want to keep it, they would take on a new mortgage to keep the home in the family. And...it's government backed, so if the home value isn't enough to pay off the loan when you pass on, the FHA Reverse Mortgage insurance kicks in and covers the difference - leaving no risk to your beneficiaries.

Here are some common myths and the facts about today’s reverse mortgage.

There are many misconceptions about reverse mortgages that sometimes lead people away from considering one. Here are many of the myths and facts about reverse mortgages that I hope bring clarity and assist you in making the most informed decision.

Reverse Mortgage Myths and Facts

Myth: You immediately sign over ownership to your home.
Fact: You retain title to your home as long as you meet the loan guidelines and requirements such as: maintaining the property, paying all property charges such as property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable), and avoiding extended absences from the home longer than six months.*

Myth: If you take out a reverse mortgage loan your children won't be left with any of the home equity.
Fact: While the amount of equity typically decreases over time with a reverse mortgage, it doesn't mean there will be no equity left when the last borrower dies. There are several factors that go into how much equity will be left, such as home appreciation, length of the loan, and optional monthly payments. There can still be equity left for your children.

Myth: Your children will be responsible for repaying the loan when you die
Fact: A reverse mortgage is a non-recourse loan, meaning that the lender can only be repaid from the proceeds of the sale of the home and not more than the value of the home. That means even if the home decreases greatly in value, the maximum repayment amount can only be up to the value of the home. While your heirs will not be responsible for the loan repayment, they will still have the option to refinance the loan to purchase it for themselves.

Myth: A reverse mortgage requires that you make monthly mortgage payments.
Fact: While you can choose to make mortgage payments, they are not required with a reverse mortgage. The borrower is still responsible to maintain the property, pay property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable), and avoid extended absences from the home longer than six months.*

Myth: You must have your first mortgage paid off before you can qualify for a reverse mortgage.
Fact: While any debt on your home's title must be paid off at closing and you must have adequate equity in the property, it is not required that you own your home "free and clear" before getting a reverse mortgage.

Myth: You are not allowed to sell your home if you have a reverse mortgage.
Fact: 
You can sell your home if you wish and - just like any other mortgage loan - you must pay off the reverse mortgage at closing. There are also no prepayment penalties if you choose to pay off your loan early or make loan payments.

Some Additional HECM Loan / Reverse Mortgage Loan Facts

  • Many retirees use a reverse mortgage.
  • It’s a specialized loan. However, program rates, fees, terms, and conditions are not available in all states and are subject to change.
  • Reverse mortgages that are FHA-insured (Home Equity Conversion Mortgages) are insured by the Federal Housing Administration providing protection for both borrowers, lenders and beneficiaries.
  • A Reverse mortgage is a specialized loan for homeowners 62 and older.
  • A reverse mortgage allows older homeowners to access a portion of the value of their home.
  • The cash or proceeds you receive from a reverse mortgage typically are not subject to individual income taxation. However, we suggest you consult your tax advisor to provide guidance for your particular situation.
  • Reverse mortgage proceeds could affect government needs-based programs such as Medicaid and Medi-Cal. Those receiving such benefits should consult a professional before obtaining a reverse mortgage.
  • It is not a government grant, but a loan that is repaid in the future when the home is sold or the last borrower dies or permanently leaves their residence.
  • A reverse mortgage is eligible only for the borrower’s primary or principal residence.
  • HUD counseling (from an independent HUD-approved third-party counselor) is required prior to the borrower incurring any costs associated with the loan.
  • A reverse mortgage loan is secured by a mortgage on the home and failure to comply with loan terms could result in foreclosure.

 

* There are some circumstances that will cause the loan to mature and the balance to become due and payable.* The borrower is still responsible for paying property taxes, homeowner’s insurance and maintaining the property to HUD standards. Failure to do so could make the loan due and payable.* Credit is subject to age, income standards, credit history, and property qualifications.* Program rates, fees, terms, and conditions are not available in all states and subject to change.* Borrowers should seek professional tax advice regarding reverse mortgage proceeds. 

 

 


Contact us today for a free consultation to see if it's right for you and find out how much you could get. Also, feel free to just give us a call at (954) 363-9022. We look forward to meeting you!