Below are the most common myths regarding Reverse
Reverse mortgages are a last resort for seniors who are poor
– although there are certainly some people who fall into this camp, it isn’t
true for all seniors who choose to go with a reverse mortgage. Many choose this
option as part of a comprehensive financial plan for their golden years, not
because they are on the ropes financially.
The lender will own
if you take out a reverse mortgage – the homeowner in fact retains
ownership and the title to their property provided they meet the loan’s
conditions. The home is simply collateral for the money taken through the
Borrowers will end up
owing more than the home is worth
– although this was a common problem with
traditional mortgages following the housing crash of 2008-2009, reverse
mortgages are considered non-recourse loans and are insured by the government.
If the loan balance is higher than the value of the property, the insurance
through HUD will cover the rest.
Children and heirs
will lose their inheritance
– after the borrower passes away, the reverse
mortgage will need to paid back. However, heirs will retain any remaining
equity in the home should they decide to sell. If they decide to keep the home,
they can pay the loan by refinancing into a traditional mortgage.
Homeowners with an
existing mortgage do not qualify
– although the reverse mortgage is supposed to
be the primary lien on the property, a borrower still qualifies for a reverse
mortgage even if they still owe money on the property. They will have to use
part of the proceeds to pay off their mortgage, but this is one reason why many
are attracted to reverse mortgages.
Taking a reverse mortgage means the borrower forfeits their
Medicare, Social Security and pension
– this is probably the biggest whopper of
them all. If you take out a reverse mortgage, you lose all of your other
retirement benefits. If you have Supplemental Security Income (SSI) or
Medicaid, your payments or eligibility may be affected, but any other benefits
will not be.