Let's separate fact from fiction with the recent headlines pointing to the detriments of reverse mortgage. These headlines are not always getting the story straight.
Americans 62 and over are facing financial stress with dropping retirement, lower savings account balances and higher health care. Mortgage companies are targeting seniors under the guise of helping them.
Over 600,000 seniors have had their best interest obtained with reverse mortgages that are closely scrutinized by regulators and legislators protecting them. The Federal Housing Administration-insured products are heavily regulated to allow seniors to stay in their homes and pay off their bills.
The top 9 reverse mortgage myths are:
1- Reverse mortgage lenders will own my home....myth. Homeowners retain title and ownership throughout the life of the loan and can sell the home at any time. If the home is maintained and the property taxes and insurance are paid, the loan cannot be called due.
2- Responsibility for repayment of the loan will be on my children's shoulders after I'm gone.......myth. If the family (heirs) choose to pay the balance in full to the reverse mortgage lender, they can. Otherwise, the property is sold at market value to pay the loan when the homeowner passes away.
3- If I have an existing mortgage, I can't get a reverse mortgage.....myth. Seniors who take out a reverse mortgage need to have enough equity to pay off the existing loan. The reverse mortgage must be the first lien. With enough equity, you may be able to pay off the existing loan and other debt. This is the number one reason most seniors take out a reverse mortgage.
4- Reverse mortgage loans can only be obtained by low-income seniors....myth. Many seniors who have no immediate need are taking these loans so they can have a financial cushion for future expenses. Seniors find they can maintain their existing quality of life and continue to build their savings.
5- What if I live out my life expectancy and the lender evicts me?.....myth. Seniors must follow the program guidelines. They continue to own the property and lenders cannon evict them. There are no time limits on how long a senior can stay in their homes.
6- Seniors don't have an objective advisor to help them make the decision if having a reverse mortgage will suit their needs.....myth. Seniors have access to third party counselors approved by the US Department of Housing and Urban Development. Educational sessions are held in local communities to help seniors make the right decision.
7- Reverse mortgage proceeds are restricted to how they can be used...myth. Although seniors should be cautious of lenders attempting to sell other products, the cash proceeds from the reverse mortgage can be used for any purpose.
8- Reverse mortgage lenders take advantage of seniors....myth. The National Reverse Mortgage Lenders Association (NRMLA) members adhere to the strict Code of Ethics and Standards for Trust. Consumers should work with lenders who are members of the Better Business Bureau as well. Seniors have been victims of lending schemes and unsavory unsavory lenders, but this an exception and not typical.
9- With my limited income, I won't quality for reverse mortgage...myth. Seniors who do not qualify for traditional financing are eligible for a reverse mortgage. Traditional mortgage is where mortgage payments must be made each month. The reverse mortgage pays you. Because of this, seniors can be eligible for a reverse mortgage.
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