Issue 44.16
Home Equity Conversion Mortgages (or reverse mortgages) have been around since 1961, but they have only become a main-stream financial product in recent years. Because HECMs are still a relatively new product many people have misconceptions about how they work. Here are ten of the top myths about reverse mortgages:
- The Lender or Government will own your home
You own your home with a reverse mortgage. The lender’s interest is limited to the outstanding loan balance as a lien on the title just the same as in a forward mortgage
- The reverse mortgage requires monthly payments
There are no monthly mortgage payments. However, the homeowner is responsible for payment of property taxes, insurance, HOA fees.
- Your children will be held responsible for repayment
A reverse mortgage is a non-recourse loan. That means that the lender can never demand any payments from you. They can only derive repayment from the proceeds of the sale or refinancing of the property. You will NEVER owe more than the value of the home. Moreover, your heirs can purchase the home for 95% of fair market value!
- You need a certain level of income, credit or good health
There are no minimum credit scores, debt ratios or health care rules.
Reverse Mortgages do have a minimum income calculation. Income requirements are far less restrictive than those required for a forward mortgage. In most cases social security income is sufficient.
- To qualify, your home must be debt free and paid off “Free and Clear”
You can still obtain a reverse mortgage if you have an existing mortgage on your home. The existing mortgage will be paid off at closing with the proceeds of the reverse mortgage.
- Reverse mortgage lenders just want to sell your house.
Homeowners can live in their primary residence as long as they wish. The lender has no actionable claim to the property until borrowers sell or move out.
- If I take out a reverse mortgage, I will have nothing for my children.
“Retained Equity” is a very important concept to grasp. Your home will probably continue to appreciate and you pay interest only on the outstanding principal, interest and charges accrued through the payoff date.
- If I get a reverse mortgage, I cannot sell my home.
You can always sell your home. The reverse mortgage will be paid off when you sell your home and you will receive the remaining equity in cash. Remember, with a reverse mortgage you never owe more than the value of your home. If your loan is greater than the value of your home, you will not be liable for any shortfall upon the sale of the home.
- If my lender changes, my loan terms can change.
Once executed, loan terms cannot change since the recorded mortgages or deeds remain in force.
- My Social Security, Medicare and / or Medicaid benefits will be affected.
Proceeds from a reverse mortgage are considered borrowed money, not income and are not taxable. Consult with your tax advisor for your specific situation.
The most important decision you can make when considering a Home Equity Conversion Mortgage is to select an experienced mortgage professional that can help you make the RIGHT strategic decision. If you want to know more, please call me today at 435-669-0009.
Veritas Funding (NMLS#252108) is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to buyer/property qualification.