Reverse Mortgage-Misconceptions

Reverse Mortgage Home >>> Misconceptions about Revere Mortgages

Unfortunately, misconceptions surrounding reverse mortgages have scared off a portion of seniors to the idea of acquiring one for themselves. Some of these misconceptions are based on a different version of the reverse mortgage that is no longer offered and hasn't been offered for years.

Today's reverse mortgage is definitely an advantage to senior homeowners. Hopefully, we'll help dispel the myths and misconceptions surrounding reverse mortgages with the information we supply here.

I'LL BE SIGNING MY HOME OVER TO THE BANK
No, you won't. You will always remain the owner of the home and the bank is only the lender. The home remains in your name. This one of the biggest misconceptions surrounding a reverse mortgage. The institution that is your lender does not have any rights to your home and cannot foreclose on your home as long as you uphold your end of the agreement which includes maintaining adequate insurance and timely payment of taxes on the property. Some of the confusion that may feed this misconception seems to originate from the fact that many borrowers choose to sell their homes to pay off their loan. But these reverse mortgage borrowers are selling to a regular buyer and not to the institution that loaned them the money for the reverse mortgage.

MY CHILDREN WON"T BE ABLE TO INHERIT MY HOME
Yes, they will. When you pass away, your children will inherit your home, whether you have a reverse mortgage, or a traditional mortgage, or no mortgage. Once the home is sold, your estate is required to pay back the loan to the bank. In essence, the bank has a lien on the house which must be satisfied. A reverse mortgage is a "non-recourse" loan. This is a safeguard for whoever inherits your estate. It basically means that the only guarantee of loan payback comes from the property itself. Although rare that property depreciates, if the property value at time of settlement is less than the balance owed on the reverse mortgage, the bank must take a loss. If the money from the sale of the home does not cover the balance of the loan, the estate is not obligated to pay the difference.

I"LL NEVER BE ABLE TO SELL MY HOME
Of course you will. Whether you have a reverse mortgage, or not, you are still the owner of the home, and you can sell it whenever you want. If you sell the house, the proceeds from the sale must be used to repay the reverse mortgage balance. Think of it the same was having a regular mortgage on your home. The bank is paid first and any profit after that amount is yours to keep.

THIS WILL AFFECT MY SOCIAL SECURITY AND MEDICARE
No, it won't. The money you receive from a reverse mortgage has nothing to do with your Social Security and Medicare benefits. It does not negatively affect government benefits. Social Security does not have specific income or resource requirements. A reverse mortgage will not have a negative impact on these benefits.

I WON'T QUALIFY BECAUSE I HAVE POOR CREDIT
You may have been denied loans in the past due to bad or moderate credit standings. This can be frustrating and embarrassing. Reverse mortgages work differently than traditional loans. You can never be denied a loan because of bad credit. The loan originator will run a credit report but this is only to insure you do not owe the government any money. If this is the case, then a portion of the reverse mortgage money will have to be used to satisfy the money owed before you receive the bulk of your money.

I NEED TO BE FREE OF DEBT
To qualify for a reverse mortgage you do not have to own your house free and clear. One of the most appealing features of a reverse mortgage is it enables you to pay off any outstanding balance owed on your current mortgage or loan. The reverse mortgage lender will figure out how much you can borrow. The balance owed on your current traditional mortgage will be satisfied first and then the balance of the loan is paid to you. So, this will put you in the position of not having any mortgage payments.

I"LL HAVE TO PAY A LOT OF INCOME TAX ON THIS MONEY
Not true. The money you receive from a reverse mortgage is considered to be the proceeds of a loan. Borrowed money is not taxable........only earnings are taxable. Additionally, the interest is tax deductible when it is repaid.

DESPERATE PEOPLE ARE THE ONLY ONES THAT GET REVERSE MORTGAGES
This is another untruth that is left over from the previous reverse mortgage program. With this healthier and advantageous version, the typical reverse mortgage client is opting for a reverse mortgage because they desire financial security, they wish to pay off debt, invest, start a business, and sometimes just to use to enjoy their retirement years.