Reverse mortgage myths and misconceptions

While there can be some legitimate reasons to wonder whether a reverse mortgage is good for you there are also a good deal of reverse mortgage myths and misconceptions out there that aren’t true.

For that reason, I am going to analyze all of the reverse mortgage myths and misconceptions and let you know which ones are true, which are false and which are a little of both. 

Reverse Mortgage Myths and Misconceptions

The Lender Takes Title To The House

Answer: Not true.

You retain ownership of your property.  The lender attaches a lien to your house, just like with a conventional mortgage. 

 I Could End Up Owing More Than The House Is Worth

Answer: Not true.reverse mortgage myths and misconceptions

Since the housing crisis of 2008, there has been a lot of talk of people owing more than their homes are worth, a situation where they are ‘underwater’.

But this is not a concern with a reverse mortgage, as reverse mortgages are ‘non-recourse’ loans, meaning that you CANNOT owe more than the house is worth.

It is worth mentioning that this is DEFINITELY something you should bring up at the counseling session and with your attorney to confirm this. 

However, as long as they confirm the non-recourse provision, this is probably the biggest of the reverse mortgage myths and misconceptions out there.

I Can’t Get An Existing Mortgage If I Have A Reverse Mortgage

Answer: Not true.

Being that reverse mortgages have to be held in 1st position, you will have to pay off your existing mortgage with the proceeds from the reverse mortgage, but there is nothing that prevents you from obtaining the reverse mortgage.

The Lender Can Evict Me

Answer: Not true.

The lender does not own the house and does not take title.  Therefore they cannot evict you.

They can only require repayment of the loan AFTER you are no longer living in the home.

There Are Restrictions On How You Can Use The Proceeds

Answer: Not true.

It is your money and you can use it however you choose to.  However, this can be a ‘double-edged’ sword, as many people do not handle money very well, so be careful how you spend it.

All Reverse Mortgage Are Scams

Answer: Not true. 

While it is true that reverse mortgages can be a confusing product and many seniors enter into them without getting all the facts, they are not scams.

To be better educate seniors as to what they are getting in to (and avoid them feeling as if they have been scammed), the US government now requires seniors to participate in a mandatory counseling session, where the applicant for the mortgage sits with a trained, impartial counselor.

It is the counselor’s job to educate the borrower as to all of the particulars of the loan, the fees they will be paying and any potential alternatives to reverse mortgages that may be cheaper for them.

Then, once armed with the facts from this impartial advisor, the borrower can make the decision as to whether or not the reverse mortgage is appropriate for their situation or not.

I Have Bad Credit So I Won’t Qualify

Answer: Not true.

The borrower’s income and credit have nothing to do with qualifying for a reverse mortgage. 

How much the borrower receives from a reverse mortgage is dependent upon…

  • The value of the house (the more valuable the house the higher the amount you qualify for)
  • The borrowers age (The older the borrower the more they qualify for)

That’s it.  Your credit and income have nothing to do with qualifying for a reverse mortgage.

Only Low-Income Seniors Qualify for Reverse Mortgages

Answer: Not true.

As stated above the income of the borrower, no matter how high or low, has nothing to do with qualifying for a reverse mortgage.

My Children Won’t Inherit My House

Answer: That’s possible.

Because a reverse mortgage must be paid back when the borrower no longer lives in the home (this could be because the borrower needed to move in with children, into a nursing home or passed on) many children would make the decision to sell the home to pay off the reverse mortgage.

I Will Be Taxed On The Proceeds

Answer: Not true.

The proceeds of a reverse mortgage are loan money, and as a result are not subject to tax regardless of the payout option you choose.

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