Reverse Mortgages: Misconceptions
Common Misconceptions About Reverse Mortgages
Many misconceptions exist about reverse mortgages. The following are some of the more common fallacies, corrected with the appropriate facts.
Misconception: The lender takes the house.
Truth: The homeowner retains ownership. The loan is secured by a deed of trust or a mortgage just like a regular mortgage; however, members DO NOT MAKE PAYMENTS as long as they live in the property.
Misconception: I can be thrown out of my house.
Truth: Homeowners can stay in the home until they move out permanently (sell the home, pass away, etc.).
Misconception: I can owe more than my house is worth.
Truth: The loan will NEVER exceed the value of the home.
Misconception: My heirs will be against it.
Truth: Experience demonstrates that heirs, once educated on the loan product, will be in favor of a Reverse Mortgage, as it allows family members to remain in their home without placing a financial burden on the heirs.
Misconception: Reverse Mortgage loan proceeds/income will affect my Medicare/Social Security income.
Truth: Loan proceeds DO NOT affect Social Security or Medicare benefits. It is your “tax-free” money to spend as you please. However, please consult your tax advisor should you have any questions.
Misconception: The children will lose their inheritance.
Truth: Historically, most houses continue to appreciate over time. A high percentage of houses retain enough equity to pass down as inheritance, allowing heirs to sell or refinance.
Misconception: The loan balance will exceed the property value.
Truth: If for some reason the loan balance exceeds the value of the property, the additional amount is “forgiven,” and heirs are NOT responsible for the difference.
Misconception: The costs of a Reverse Mortgage are too high.
Truth: Compared to other mortgage loans, the benefits of a Reverse Mortgage will outweigh the costs in many instances, with the member’s ability to finance all closing costs (and thus avoid out-of-pocket expenses). The major benefit of a Reverse Mortgage is having NO monthly mortgage payment, as long as the property is occupied as the primary residence. In the long term, when the Reverse Mortgage is kept for the member’s life, the costs are comparable to regular mortgage loans.
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