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Learn What’s True about Reverse Mortgages. And What’s Not!
More and more mature Americans are exploring reverse mortgages these days. For homeowners ages 62 and up, a reverse mortgage can be an excellent way to improve your cash flow to help cover expenses or improve your quality of life. Over the years we have found that it’s easy for people to get confused about reverse mortgages. Below are a few of the common misconceptions, along with a brief explanation about what is actually true.
- FALSE: The lending institution actually owns the house in a reverse mortgage arrangement. This is not true. FACT: Borrowers still maintain ownership of the home under a reverse mortgage, just as with a conventional mortgage. Because there is no change in title possession, homeowners must still pay property taxes, keep up with repairs, and maintain proper insurance on their home.
- FALSE: Under a reverse mortgage, a homeowner will lose his or her home. Exactly the opposite is true. FACT: If homeowners remain compliant with the terms of the reverse mortgage (such as not renting the home out or living elsewhere for over six months in a given year), they can remain in the home for as long as they live or until they leave or sell it.
- False: Homeowners can’t qualify for a reverse mortgage if they don’t meet certain income requirements. No more than with any mortgage qualification. FACT: There are only these basic income requirements that apply for any mortgage: enough to pay property taxes, keep up with repairs, and maintain proper insurance.
- False: A reverse mortgage will affect seniors’ Social Security or Medicare benefits. In most cases, no. FACT: Reverse mortgage payments might affect the status of a person’s Medicaid eligibility or some Federal Supplemental Security Income or state entitlement programs. Call Rick to find out.
- False: A conventional mortgage must be entirely paid off in order for a homeowner to qualify for a reverse mortgage. Of course not! FACT: A reverse mortgage refinances, i.e., repays, the conventional mortgage first.
- FALSE: Under a reverse mortgage, the homeowner faces numerous restrictions on how he or she can spend the money. Absolutely not true. FACT: Funds received from a reverse mortgage can be used for anything. Period. Repeat: Anything at all. Period.
- FALSE: A homeowner could be stuck with a huge bill at the end of a reverse mortgage if the home’s value depreciates. Can’t happen. FACT: A reverse mortgage is known as a “non-recourse” loan, which means that the lender cannot demand a larger amount than the home’s value at the time it is sold/settled to retire the debt. If the market value of the home falls below the amount of debt owed, or if the occupant outlives the life of the reverse mortgage, then he or she, or an heir, is only required to pay back an amount equal to the value of the home. That is one of the purposes of the required FHA insurance: it insures the lender against losses and the borrower against owing more than the value of the home. This is actually one of the main advantages of a reverse mortgage.