Consumers are often confused about the concept of reverse mortgages and how they can benefit their financial well-being. Many misconceptions persist. Reverse mortgages are, in fact, an important financial tool that many retirees may find helpful as they map out their future. To help dispel the myths surrounding reverse mortgages, here are five common misconceptions:
Myth #1: The Bank Will Own My Home
Don’t worry. Even with a reverse mortgage, your home is still yours.
As long as you meet the loan requirements, you will retain ownership and keep the title to your home. And, contrary to popular belief, the requirements of the loan are very simple:
- The home must be your primary residence
- You must maintain the home
- You have to pay your property charges (homeowners insurance, taxes, HOA fees)
- You must honor the terms of your loan documents
The only way you could lose your home is if you don’t meet one of these requirements.
Myth #2: I Have a Mortgage so I Can’t Get a Reverse Mortgage
As long as you have equity in your home, you may still qualify for a reverse mortgage.
Even if you don’t think you have enough equity in your home, a reverse mortgage could be a great financial tool moving forward. An expert loan officer can help you determine what’s right for your situation. Statistics show that many homeowners over the age of 62 still have a mortgage and owe money on their primary residence. So, if you don’t own your home outright, you are not alone, and you have options.
Myth #3: Reverse Mortgages Have Large Out-of-Pocket Expenses
Similar to any traditional mortgage, reverse mortgages do have costs and fees. The majority of these fees are the same fees you would pay for any mortgage. The good news is that you can roll most of them into the loan, which greatly reduces any out-of-pocket expenses. Many borrowers pay little to no fees out of pocket.
Your lender should provide you with a detailed cost breakdown that explains the different interest and pricing options, closing costs, and fees, which can vary based on the loan type and size.
Myth #4: I Can’t Leave My House to My Children
With a reverse mortgage, you can still leave your home to your children. The title will pass to your estate. Heirs can choose to either keep the house by refinancing the existing mortgage balance or, if there is remaining equity, sell the home and keep what remains from the balance of the loan and the proceeds of the sale.
You always have the option to make elective payments to pay down or minimize the impact of the accrual of interest on your loan. These are non-recourse loans, and your heirs are protected from inheriting debt from the reverse mortgage.
Myth #5: Reverse Mortgages Are Only for Desperate People
A reverse mortgage can be a true path forward in retirement and an empowering experience. People use reverse mortgages for a wide variety of reasons. The most common use is to pay off an existing mortgage. Some might use this tool to defer collecting Social Security or as a safety net for emergencies. Others use their home’s equity to enhance their life with greater flexibility and options in retirement.
Retirement is a time to realize a business idea, travel, help family members with education expenses, make charitable donations, or even use the funds for buying additional real estate. A reverse mortgage can be an effective tool to help add choices to your retirement years.
The more you know the real truths about reverse mortgages, the better you’ll be able to determine if one is right for your situation.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.