Misconceptions of Reverse Mortgage Loans: Myth vs Fact
MYTH #1 :
The bank or lender takes ownership of my home.
FACT: You or your estate continue to retain ownership
of your home's title, as long as you keep current with
property taxes, insurance, and maintenance.
The lender’s interest is limited to the outstanding
loan balance as a lien on the property.
MYTH #2 :
A reverse mortgage loans requires me to make monthly
mortgage payments.
FACT: There are no monthly payments required on a
reverse mortgage – you have the freedom and flexibility
to pay as little or as much as you want, as often as
you’d like. However, as a borrower, you are responsible
for real estate taxes, homeowners insurance, and
property maintenance.
MYTH #3 :
My heirs will be responsible for repaying the loan.
FACT: Since reverse mortgages are non-recourse loans,
the lender can only derive repayment of the loan from
the proceeds from the sale of the property. Even if the
value of the home is dramatically reduced, you or your
heirs will never owe more than the value of the home
when the loan is repaid. And when the loan becomes
due, your heirs have several options on what they can
choose to do with the home. They can repay the loan
and keep the home for themselves, sell the home and
keep any remaining funds, or do nothing with the home
and deed it to the lender.
MYTH #4 :
To qualify for a reverse mortgage, my home must be
debt-free and paid off “free and clear.”
FACT: You can have a mortgage or other debt on your
home’s title as long as you have adequate equity in the
property. If there’s a mortgage on your home, the
money from the reverse mortgage is first used to pay
off that loan.
MYTH #5 :
Reverse mortgage lenders just want to sell my house.
FACT: You can stay in your house for as long as you
want, as long as you meet the terms of the loan, which
includes taxes, insurance, and maintenance. Should you
decide to sell your home or relocate, the loan would
then become due and payable.
MYTH #6 :
If I get a reverse mortgage, I will be left with nothing
to leave to my heirs.
FACT: Since you’d be borrowing money against the
value of your home, and accruing loan interest and
mortgage insurance payments, the loan amount would
increase over time. That said, the home may appreciate
in value – so it’s possible that there may be money left
over from the sale of the house that would go to your
heirs, once the loan is paid.
MYTH #7 :
I cannot sell my home if I get a reverse mortgage.
FACT: A reverse mortgage is like any other loan.
If you sell your home, the reverse mortgage will
be paid off at closing. There are no prepayment
penalties for paying off or selling the home
in advance.
MYTH #8 :
A reverse mortgage should be used as a last resort.
FACT: A reverse mortgage is a powerful financial tool
that can be an important part of your overall financial
plan. From paying off an existing mortgage to delaying
Social Security, or even creating an emergency line of
credit, it’s a flexible product designed to give you
options. In fact, many financial planners have begun to
discuss reverse mortgages with clients who need
additional sources of retirement funding.
MYTH #9 :
Reverse mortgages are expensive.
FACT: Reverse mortgage loan origination costs and
interest rates are comparable to those of traditional
mortgages. There are FHA insurance costs that some
traditional mortgages do not require, but they are
relatively small. Plus, lender closing costs and fees can
typically be financed into the loan, so there is little
required from you out of pocket.
MYTH #10 :
If my lender or servicer changes, my loan terms are
subject to change.
FACT: The terms of your loan are defined at closing
and by law, cannot be changed, as long as the deed
remains in force.
