Reverse Mortgage Myths and Misconceptions

Reverse Mortgage Myths and Misconceptions

Despite the growth of reverse mortgages, many senior homeowners are still wary of these loans. A lot of seniors often ask for advice from their relatives and friends, but the problem is that most of these people also lack knowledge on the subject. Retirees can benefit greatly from reverse mortgages. But in order for them to enjoy the benefits offered by these loans, the reverse mortgage myths and misconceptions they are harboring should be dispelled first.

Safety is primary concern of most retirees considering reverse mortgages. They think that when they get a reverse mortgage, the bank will assume ownership of their homes, which is not true. What these homeowners should realize is that the home is in and remains in their name only. They can continue to own their homes and retain title throughout the life of their loan. Reverse mortgages, being like all other mortgages, require a lien to be placed on the property to ensure lenders they will be repaid the amount owed, which includes the principal, interest and closing costs. Additionally, most reverse mortgages are insured by the Federal Housing Administration, which offers maximum protection through the insurance fee paid on all FHA reverse mortgages. Other reverse mortgages are insured by the private lenders that offer them.

Another common misconception is that compared to other mortgages, reverse mortgages are more costly. But the truth is reverse mortgages could actually be lower in cost compared to other types of mortgages. This is because conventional mortgages can charge more than the 2 percent origination fee permitted on all reverse mortgages. Also, closing costs for reverse mortgages average only about 1 percent more than if a regular FHA mortgage were obtained on the same property.

Some homeowners also have this misconception that they cannot qualify for a reverse mortgage if they have an existing mortgage, or other real estate secured debt. But even though they have an outstanding first mortgage or other home equity loan or tax lien, they are still eligible for a reverse mortgage. However, the existing debts must first be paid off by the loan proceeds.

Another mistaken belief homeowners may have concerns the requirements needed to obtain a reverse mortgage. There are no income or credit requirements for reverse mortgages as long as one surviving borrower continues to reside in the home. Borrowers with previously discharged bankruptcies are also qualified. Aside from meeting the age requirement of 62 or older, it is required that the borrower must own the home with no others on the title.

One other falsehood that needs to be corrected is the belief that a reverse mortgage is taxable and affects Social Security and Medicare. In reality, proceeds from reverse mortgages are tax-free simply because they are loans, and not income. Plus, rules governing Social Security, Medicare and FHA Reverse Mortgage have all been made to complement each other. However, in instances when borrowers exceed certain liquid asset amounts, Supplemental Security Income (SSI) and Medicaid may be affected.

With the different reverse mortgage myths and misconceptions now dispelled and cleared up, skeptical retirees can now feel comfortable getting a reverse mortgage and enjoy the benefits that come with it. By getting assistance from a reverse mortgage advisor, homeowners can go through the process easily and with confidence.