Reverse Mortgage Misconceptions vs Reality

Numerous misconceptions surround the concept and implications of a reverse mortgage. Reach out to David Blatt for comprehensive insights into how a reverse mortgage can serve your needs.

Here are common fallacies debunked, providing clarity to empower your decision-making:

Misconception: Signing over home ownership immediately is mandatory.

Reality: Retaining title to your home is contingent upon meeting loan guidelines, including property maintenance, covering property charges (e.g., taxes, insurance), and avoiding extended absences. A lien secures future loan repayment, akin to traditional mortgages.

Misconception: A reverse mortgage depletes home equity, leaving none for heirs.

Reality: While equity may diminish over time, factors like home appreciation and loan duration influence remaining equity. Your children can still inherit equity, contingent upon various factors.

Misconception: Heirs bear responsibility for loan repayment upon your demise.

Reality: A reverse mortgage is non-recourse, meaning repayment is solely from home sale proceeds, capped at the home’s value. Heirs have the option to refinance but aren’t obligated to repay the loan.

Misconception: Monthly mortgage payments are obligatory with a reverse mortgage.

Reality: While optional, making payments isn’t compulsory. Responsibility includes property maintenance and covering property-related expenses.

Misconception: Paying off the primary mortgage is a prerequisite for a reverse mortgage.

Reality: Clearing existing debts on the property title and possessing sufficient equity are requisite, but owning the home outright isn’t mandatory.

Misconception: Selling your home with a reverse mortgage is prohibited.

Reality: Selling your home is permissible, with the reverse mortgage settled at closing. No prepayment penalties apply for early repayment or making payments.

Additional Reverse Mortgage Facts

• Reverse mortgages are commonly utilized by retirees.
• These mortgages enable older homeowners to access a portion of their home’s value.
• Designed specifically for homeowners aged 62 and older.
• Only applicable to the borrower’s primary residence.
• FHA-insured options (HECMs) offer protection for borrowers, lenders, and beneficiaries.
• HUD counseling from an independent third-party counselor is mandatory before incurring any loan-related costs.
• Cash received from a reverse mortgage is typically not subject to individual income taxation, but consulting a tax advisor is advised.
• Unlike government grants, reverse mortgages are loans repaid upon home sale, borrower’s demise, or non-compliance with loan terms.
• Proceeds from a reverse mortgage could impact government needs-based programs like Medicaid; consulting a professional is recommended.
• Failure to comply with loan terms may result in foreclosure, as reverse mortgages are secured by the home.
• Program availability, rates, and terms vary by state and are subject to change.
• Certain circumstances may cause the loan to mature, with borrowers remaining responsible for property taxes, insurance, and property upkeep.
• Eligibility depends on age, income, credit history, and property qualifications.
• Borrowers should seek professional tax advice regarding reverse mortgage proceeds.