Top 5 Reverse Mortgage Myths
With the economy in decline and retirement savings dwindling, many seniors are considering reverse mortgages. Unfortunately, myths about these home loans prevent some seniors from receiving the funds that could make a big difference in their lives. Here is the truth about the top 5 reverse mortgage myths.
Myth 1: The bank takes the house OR the borrower can lose the house.
Fact: With a reverse mortgage, you retain title to the home throughout the life of the reverse mortgage. You can’t, as a result of the reverse mortgage, be forced out of your home, as long as property taxes and hazard insurance are paid and the home is maintained in reasonable living condition. Once the last borrower permanently moves out of the home, the loan must be repaid. If the property still has equity when this occurs, you or your heirs can choose to sell the home to repay the loan and preserve remaining equity.
Myth 2: The home must be paid off or be debt-free to qualify for a reverse mortgage.
Fact: Reverse mortgages convert home equity into cash. As long as there is sufficient equity in the property, you may be eligible for a reverse mortgage. Many seniors choose to pay off an existing mortgage with reverse mortgage funds in order to eliminate their monthly mortgage payment.
Myth 3: The borrower could end up owing more than the home is worth.
Fact: Reverse mortgages are structured so that you or your estate can never owe more than the value of the home upon repayment as long as you or your estate don’t wish to keep the home upon repayment of the loan. In addition, the HECM products are insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD).
Myth 4: It’s cheaper to move to a smaller house.
Fact: While this strategy might be right for different reasons, you need to analyze the costs carefully. The process of selling a home and moving into a new one can be expensive. The typical real estate commission of 6% on a $300,000 home would be $18,000. Add moving costs and the decision is not as simple.
Myth 5: Children want the home or don’t feel comfortable with their parents obtaining a reverse mortgage.
Fact:Talk with your children about reverse mortgages. Many baby boomers are trying to plan for their retirement and pay for their children’s education. They’re often happy that their parents have a financial solution available to help them live more independently and financially secure.
If you’re interested in a reverse mortgage, contact a reputable lender like Financial Freedom to discuss your options and important lending safeguards. You’ve worked hard for your house, now let it work for you.
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ABOUT THE AUTHOR
Jim Fink is a financial advisor specializing in the needs of senior citizens. Learn more about reverse mortgage products at Financial Freedom.