Common Reverse Mortgages Myths & Misconceptions
HECM reverse mortgages are Federal Housing Administration-insured products and are heavily scrutinized by regulators and legislators looking to protect seniors' best interests. In-spite of the above mentioned fact, there are still a wide range of myths and misinformation exist about these unique loans.
More and more seniors are starting to avail this great facility to lead them to financial freedom in today's tough economic conditions. Fortunately there is great deal of information is now available both online and offline about reverse mortgage. However, as seniors and advisors are exploring reverse mortgages more than ever before, some old myths still linger and new myths have emerged.
We've compiled a list of misconceptions that you may encounter on your way to a better life style in retirement years:
Myth 1: You'll loose your home...
This is the number one misconception about Reverse Mortgages. In reality, you always maintain full ownership of your home. You will always own your home and the lender will never take your home. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due. The money that you borrow is due only when you no longer live in the home. Once the last borrower permanently moves out of the home, the loan must be repaid.
Myth 2: My heirs will not inherit the home...
Not true at all. The federal government guarantees that you can never owe more than the market value of the home, even if the balance is greater. Your loan is insured by the FHA and it is this reason you get this guarantee. This ensures that your heirs will never have to pay from their pocket. Upon passing, your heirs can decide to refinance with a conventional mortgage and keep the home or they can sell the home and divide the remaining equity.
Myth 3: I don't have a perfect credit, I can't get it...
Excellent, good, bad credit don't apply to a reverse mortgage. If you are getting the Home Equity Conversion Mortgage (HECM)of the government, the only requirement is that you must not be delinquent on your other loans like FHA loan, Federally Insure SBA loan, Federally Insured Student Loan, and similar other programs. You can even apply for reverse mortgage if you have declared bankruptcy. The only requirement is that you should have a history of consistent payment for the bankruptcy plan for 12 months. In fact, you can qualify for a reverse mortgage even if you are already facing a foreclosure.
Myth 4: You don't qualify if you owe money on your home...
False, You may qualify, even with a first or second mortgage on the home. In fact, many seniors use a reverse mortgage to pay off an existing mortgage in order to eliminate a required monthly mortgage payment. And the remaining amount can be used for any purpose you like.
Myth 5: I am not poor, I don't need a reverse mortgage...
Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to use it to improve their standard of living or make plans for their estate. Many seniors with multi-million dollar homes are using reverse mortgages as part of their estate or legacy planning in conjunction with advice from financial advisors.
Myth 6: The homeowner pays taxes on a reverse mortgage...
Not true. The proceedings from a reverse mortgage are tax free. The money is considered a "loan" not "income" that's why there are not taxes on it.
Myth 7: Reverse mortgages effect other benefits like medicare and social security...
It will never affect your government based medicare and social security benefits. Need based programs like Medicaid can be affected if the reverse mortgage is improperly managed. So it is recommended that you should consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits. But retirement programs, social security benefits, and taxes will never be affected by reverse mortgage.
