Let’s Debunk Some of the Most Common Reverse Mortgage Loan Myths
Myth: A reverse mortgage sells the home to the bank
Fact: The homeowner retains full ownership of the property. The bank only places a lien on the home to secure repayment of the loan.
Myth: Heirs will lose the home
Fact: Heirs have the first right of refusal to buy the home. If they chose to sell the home, they are entitled to any remaining equity after the reverse mortgage loan balance if taken care of.
Myth: Reverse mortgages can cause homeowners to lose their homes
Fact: These loans are designed to allow seniors to stay in their homes. As long as the homeowner meets the terms of the loan, such as paying property taxes, homeowners insurance, and maintaining the property, they cannot be forced out.**
Myth: It’s possible to outlive a reverse mortgage
Fact: The reverse mortgage loan only becomes due when the last borrower has moved out for a year or more or has passed away.**
Myth: Social Security and Medicare benefits will be reduced
Fact: Reverse mortgage proceeds do not affect Social Security or Medicare benefits. However, they could impact need-based programs like Medicaid, depending on the withdrawal amount.
Myth: Reverse mortgage funds are taxable
Fact: The money received from a reverse mortgage is not considered taxable income. However, homeowners still need to pay their property taxes.*
Myth: Large upfront costs are required
Fact: Most closing costs and fees can be included in the reverse mortgage, minimizing out-of-pocket expenses. Typically, only the HUD counseling fee and appraisal need to be paid upfront.
Myth: Reverse mortgages are the same as home equity loans
Fact: While both use home equity as collateral, reverse mortgages do not require monthly payments and only become due when the homeowner has moved out for 12 months or more or has passed away. Home equity loans typically require regular monthly payments.
Myth: Reverse mortgages are only for those who are in desperate financial situations
Fact: Seniors from diverse financial backgrounds use reverse mortgages for various needs, such as paying off existing mortgages, making home improvements, or covering medical expenses. They can also be a part of a broader retirement strategy.
Myth: If the loan balance exceeds the home value, immediate repayment is required
Fact: Reverse mortgages are non-recourse loans, meaning the homeowner or their estate will never owe more than the home’s value at the time of sale. Any shortfall is covered by government insurance.
Learn More About a Loan You’ll Love
Learn More About a Loan You’ll Love
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Whether you’d like better cash flow, want to move closer to family or need to make your home accessible, I’m here to help.
*consult a tax professional
**Certain conditions may lead to the loan maturing, necessitating the balance to be paid in full. The borrower remains responsible for covering property taxes, insurance, and home maintenance. Credit approval depends on age, property, and specific debt criteria. Program rates, fees, terms, and conditions are subject to change and may not be available in all states.