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Nov 2008
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Reverse Mortgages
Reverse Mortgage Myths
Myths abound when it comes to reverse mortgages. If you're in the market for a reverse mortgage, the following information could be important to you.
MYTH #1 - I WOULD BE SELLING MY HOUSE TO THE BANK. FALSE! You keep the title to your house. The lender will add a lien on the property, but you will still have complete control over it.
MYTH #2 - MY HEIRS WON'T INHERIT ANYTHING. FALSE! Your estate only owes the balance on the reverse mortgage or the appraised value, whichever is less. For example, if you got a reverse mortgage and owed $50,000 after 5 years and then you decided to sell the house for $250,000, the lender would get $50,000 and you would get $200,000.
MYTH #3 - I MIGHT OUTLIVE THE LOAN. FALSE! FHA/HUD reverse mortgages are designed specifically so that you can't outlive the loan. When you get the reverse mortgage, the lender will charge you 2 percent to purchase mandatory FHA mortgage insurance. That insurance guarantees that even if you live to be 100 or older, you can never owe more than the value of your home and you can never be forced to leave.
MYTH #4 - I COULD BE FORCED OUT OF MY HOME. FALSE! FHA/HUD reverse mortgages specifically state that you cannot be forced out of your home.
MYTH #5 - MY SOCIAL SECURITY AND MEDICARE BENEFITS WILL BE AFFECTED. FALSE! Money from a reverse mortgage is not considered income because it is a loan. For this reason, a reverse mortgage does not lower Social Security and Medicare benefits.
MYTH #6 - I WOULD HAVE TO PAY TAXES ON THE REVERSE MORTGAGE PROCEEDS. FALSE! Again, money from a reverse mortgage is not considered income because it is a loan. Therefore, you pay no taxes on the proceeds.
MYTH #7 - THERE ARE BIG OUT-OFPOCKET EXPENSES. FALSE! All of the costs, whether closing costs or interest, are financed. That means there are never outof- pocket expenses at any point in the reverse mortgage.
MYTH #8 - A REVERSE MORTGAGE IS NO DIFFERENT THAN A HOME EQUITY LOAN. FALSE! First, home equity loans may have many requirements such as income, low debt and good credit that a reverse does not.
Second, you can “outlive” a home equity loan and end up being foeclosed on by the bank. This can never happen with a reverse mortgage.
Third, a reverse mortgage usually has significantly lower interest rates compared to a home equity loan.
Fourth, you have to make monthly payments on the home equity loan. With a reverse mortgage, you will never make another monthly mortgage payment for as long as you live in your home!
Many seniors are very skeptical of reverse mortgages and are frequently heard saying, “Sounds too good to be true!” This is understandable, but with some good, old fashioned research, much information is available for your review and you can judge for yourself. Reverse mortgages are becoming more and more popular with each passing day. There are currently over 275,000 reverse mortgages in place with a satisfaction rate of over 90 percent among borrowers. More and more lenders are now offering reverse mortgage products in addition to their standard “forward” mortgages, and many more will enter the marketplace in the months and years to come.
For further information on reverse mortgages, contact a qualified reverse mortgage consultant.
Kathy Stone is a certified senior advisor and a reverse mortgage consultant with Allied Home Mortgage, and a member of the National Reverse Mortgage Lenders Association. For more information or to attend an upcoming reverse mortgage seminar, call 775-324-7122 ext. 12 or visit www.alliedmtgcapital.com.