The most common misconceptions about Reverse Mortgages:
1) The Lender "gets" the house. I hear this one every day, even from educated professionals. The truth is that the owner keeps the house and has a loan on it the same way they do for a regular mortgage. They stay on title and the lender NEVER takes ownership of the property.
2) The costs are too high. This is another common mistake. The costs are too high compared to what? The costs can be higher than for a forward mortgage (In NY, because there is no mortgage tax on Reverse mortgages, the costs may be very similar) BUT, you will have to make monthly payments on a forward mortgage AND if the value of the property drops, you will be on the hook for a forward mortgage AND you will not be getting a check every month with a forward mortgage. The bottom line is that YOU CANNOT COMPARE THE COSTS OF A REVERSE MORTGAGE TO ANYTHING because there is not anything like it. There is just nothing out there that can provide the happiness and financial peace of mind that a Reverse Mortgage can.
3) I (or my heirs) will owe more than the house is worth. All Reverse Mortgages are NON-RECOURSE LOANS. That means that the most the lender can get repaid is the value of the home. If the borrower lives to be 150 years old and owes one million dollars more than the home is worth (for example,) the lender will lose one million dollars. This is the risk that Reverse Lenders take. They don't take the risk that you won't make payments (like forward mortgage lenders make) but they risk that you will live a lot longer than they expect or that the value of your home will drop. Either way, NO ONE gets a bill once the loan is paid off.
4) The children will never allow it. At least 15% to 20% of the people who have contacted me about a Reverse Mortgage were the children of someone who needed it. Experience has shown that once the children are educated about how the Reverse Mortgage works (many have the above misconceptions) they are in favor of it. Think about a parent in need and ask yourself if the children would rather inherit the equity one day or use it to help their parents now.
That's it for today. Tune in tommorw.
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