Reverse Mortgages - The Top 8 Myths Explained
By James Hussher
Reverse mortgages are gaining in popularity as the Baby Boomers start to retire. Instead of selling your home, or taking on debt with an equity loan, reverse mortgages offer great options to tap into your built-up equity without incurring debt! There are some misunderstandings and common concerns about this type of financial instrument that I would like to help clear up in this article:
Top 8 Myths about Reverse Mortgages
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 for the reverse mortgage but you will still have complete control and ownership of your home.
2. "My heirs won't inherit anything"
FALSE Your estate will only owe the lender for the balance on the reverse mortgage, whatever you have drawn out of your equity. The balance is however much you have received/spent, plus interest.
Let's say you got a reverse mortgage and after 5 years you owed $50,000 and then decided to sell the house for $250,000. The lender gets their $50,000 plus interest and you get $200,000. Or your estate does, if you die.
3. "I might 'outlive' the loan"
FALSE FHA/HUD reverse mortgages are specifically designed so that you can not outlive the loan. When you first obtain the reverse mortgage, the lender will charge you about 2% to purchase mandatory FHA mortgage insurance. That insurance guarantees that even if you live to be 100, you can never owe more than the value of your home and you can never be forced to leave your home!
4. "I could get forced out of my home"
FALSE FHA/HUD reverse mortgages specifically state that you cannot be forced out of your home.
5. Social Security and Medicare will be affected"
FALSE Money received 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.
6. "I would have to pay taxes on the reverse mortgage"
FALSE You have already paid taxes on the money when you were earning and putting equity into your home. When you take it out again, it is not taxable.
7. "There are big out-of-pocket expenses"
FALSE All of the costs, whether closing costs or interest, are financed. There are never any out-of-pocket expenses at any point in the reverse mortgage.
8. A reverse mortgage is similar to a home equity loan"
FALSE First, home equity loans may have many additional requirements, such as income, low debt, and good credit rating, that a reverse mortgage does not. The only relevant factor for a reverse mortgage is home ownership with built-up equity that you would like to access in your retirement years.
Second, you can outlive a home equity loan and end up being foreclosed on and forced from your home! This can never happen with a reverse mortgage.
Third, a reverse mortgage usually has much lower interest rates than a home equity loan.
I hope this article has cleared up some of the apprehensions and misconceptions about reverse mortgages. Please consult your mortgage planner, CPA or financial planner for more information.
Enjoy your retirement, you've earned it!
Please visit James at http://swifthussherrealestate.com for mortgage needs. Apply online, check current offered rates and loan programs and more!
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