An FHA-insured HECM reverse mortgage can be a great financial tool for seniors age 62 and older. It is a safe and increasingly common retirement income tool that can effectively improve cash flow and portfolio longevity.
However, many retirees do not take advantage of reverse mortgages because of the rampant misinformation and reverse mortgage myths float around them. The media is spreading misinformation about reverse mortgages without any specific proof and facts.
It’s not unusual for reputable media to report blatantly inaccurate information about the reverse mortgage. This post is about to dispel the reverse mortgage myths and reveal the facts. Have a look!
Myth 1: A Reverse Mortgage Is Similar To A Home Equity Loan
Fact: Reverse mortgage is a completely different concept than a home equity loan. In a home equity loan, you need to make regular monthly payments to the lender. But, with an FHA insured reverse mortgage, you do not need to pay any monthly payments; instead, the lender will pay you.
Myth 2: You Lose the Title of Your Home When Get a Reverse Mortgage
Fact: Your home will remain at your name, just as with any mortgage. You have to pay real estate taxes, maintenance charges and insurance, as you do every time. Until you die or move away, the title of the home will remain on your name. So, do not believe in reverse mortgage myths like this one.
Myth 3: Reverse-Mortgage Loans Come With Expensive Fees and Interest
Fact: As you pay fees for a conventional home loan, the reverse mortgage also comes with reliable fees and interest rates which are not high. Further, the fees depend on the value of the home, loan terms, and interest rates. A reverse-mortgage professional can help determine the interest rate and fees before you finalize the loan.
Myth 4: Reverse Mortgages Are Only For Seniors with a Certain Income Level
Fact: Another common reverse mortgage myth is that the reverse mortgage loan is only for seniors with a certain income. But, the level of income has nothing to with reverse mortgage, as it depends upon the equity present in your home. It depends entirely on your home’s equity and somewhere on your present financial condition.
Myth 5: Heirs have to pay Back the Loan- common Reverse mortgage myths
Fact: When the borrower or non-borrowing spouse dies, the heir of the estate can sell the property and can use the proceeds to repay the loan amount. In this case, the remaining proceeds after paying the loan amount from the sale can be divided among the heirs. If the sale of the home does not cover the entire loan balance, then the FHA pays the difference. Also, heirs can keep the home by repaying the loan
Myth 6: If you get a reverse mortgage, you cannot sell your home
Fact: You can sell your home anytime with a reverse mortgage. Sell the home, pay off the loan balance with the proceeds from the sale and keep the remaining equity with you. If you sell your home, that reverse mortgage will be paid off at closing. There are no prepayment penalties for paying off or selling the house in advance.
Myth 7: You Will Lose Your Social Security or Medicare Benefits
Fact: A reverse mortgage does not affect your Medicare benefits as well as social security. For Medicare benefits, the government has set a maximum monthly income. And if your income exceeds that range then only you are not eligible for Medicare benefits. If you want to increase your retirement income, you should discuss the advantages of an adjustable-rate of the reverse mortgage with your lender.
Myth 8: The homeowner Need to pay taxes on a reverse mortgage
Fact: the money you will receive from reverse mortgage is not considered as income and thus it is tax free. You do not need to pay any tax on reverse mortgage amount. But, you will be responsible for paying property taxes, maintenance charges and insurance.
Myth 9: You can Use the reverse mortgage funds Only in a specific way
Fact: one of the best benefits of reverse mortgage is that you can use the money from it in any way you want. You can convert a portion of your home equity into money and can use it for travel, paying utility bills, daily monthly expenses and more. The fact is it is your money which you can use anywhere anytime.
Myth 10: Reverse mortgage Should be the last resort
Fact: Most people think that reverse mortgage is a last resort for getting extra cash in retirement. But, the HECM home equity loan can offer elders much more flexibility as well as freedom with your money. You can choose a lump sum, monthly installments or a line of credit to ease your cash-flow.
However, the product advances have made reverse mortgages more attractive among rich and poor retirees. It offers a financial freedom to elders age 62 or older.
All in all, there are many reverse mortgage myths that are floating around you. It’s important to know of the reality or fact behind these myths so that you can take advantage of reverse mortgage after retirement.
If you are planning to get reverse mortgage, then contact Brett because the process of reverse mortgage can be complicated and Brett help you through it.