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Reverse Mortgages – Top 8 Erroneous Myths
Reverse Mortgages are becoming an increasing “income supplement” option for Seniors over 62. With the rise in popularity, disinformation abounds. Here I list some of the top erroneous myths….
1. I would be selling my house to the bank
FALSE You keep the title to your house. The lender will add a lien (mortgage) on the property but you will still have complete control over it. It is and will be your house.
2. My heirs won't inherit anything
FALSE Your estate only owes the balance on the reverse mortgage.
At any time, you or your heirs can pay off the outstanding balance of the reverse mortgage and keep the home and any residual eqiuty therein.
The payoff amount is the sum of the principal plus the interest accrued on the balance you have taken out.
Example: Let's say you got a reverse mortgage and owed $150,000 between principal and interest after 10 years. You or your heirs decide to sell the house for $250,000. When sold, you pay the lender the $150,000 you owe and you and/or your heirs get the remaining $100,000..
3. I might "outlive" the loan
FALSE FHA/HUD reverse mortgages are designed specifically so that you can't outlive the loan. FHA mandates that when you close the loan, you purchase mortgage insurance (part of the closing costs which will be financed into your loan.)
This mortgage insurance guarantees that even if you live to be 130, you can never owe more than the value of your home and you can never be forced to leave.
4. I could get forced out of my home
FALSE FHA/HUD reverse mortgages specifically state that you can not be forced out of your home provided it continues to be your primary residence.
5. Social Security and Medicare will be affected
FALSE Money from a reverse mortgage is not considered income, it technical terms, it is a liability. For this reason, a reverse mortgage does not lower Social Security and Medicare benefits.
6. I would have to pay taxes on the reverse mortgage
FALSE You already paid taxes on the money when you were putting the equity into your home. When you take it out again, it is not taxable.
7. There are big out-of-pocket expenses
FALSE All of the closing costs, with the exception of the appraisal fee, are financed and rolled into the loan. This means there are never out-of-pocket expenses at any point in the reverse mortgage.
8. A reverse mortgage is similar to a home equity loan
FALSE A reverse mortgage DOES NOT REQUIRE ANY REPAYMENT OF PRINCIPAL OR INTEREST AS LONG AS YOU LIVE IN THE HOME. If you take out a traditional mortgae or Home Equity loan/line, you will be required to make monthly payments or risk foreclosure.
Secondly, a home equity line of credit will have “underwriting requirements” such as income, asset and credit verifications. The reverse mortgage is a NO DOC loan. The only items required are:
a. Proof that you are 62 years old (copy of driver’s license or passport)
b. Copy of your social security card
c. Appraisal of the property
d. Evidence you have adequate homeowner’s insurance on the property.
If you have any questions, please call Lourdes or Teresa Cuervo at 305-665-9070
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