Reverse Mortgage Misconceptions
Reverse Mortgages are a great way to use the equity of your home to create a cash flow. Over time, as your loan balance increases your home equity decreases, but you can still maintain ownership of your home and avoid monthly loan payments. In order to repay this type of mortgage, the proceeds from selling your house are used to pay the outstanding balance, and any remaining amount will go to you or your estate. If an heir chooses to keep the home when a homeowner passes, then they can pay the balance of the reverse mortgage and refinance in order to obtain the property/house. Many misconceptions exist around this type of mortgage; in order to reveal what is fact or fiction we will list some of the most common myths and the truth behind them to eliminate the confusion around reverse mortgages:
Myth: A reverse Mortgage is a home equity loan
Truth: Unlike a home equity loan, this type of loan will not require a series of monthly payments. Most home equity loans are a second lien on the property. A reverse mortgage, HECM, or Home Equity Conversion Mortgage, is a 1st and 2nd lien on the property.
Myth: I could get forced out of my home.
Truth: Reverse mortgages only pull from the equity in your home, and you cannot be forced out of your home as long as you adhere to the loan requirements (paying property taxes, HOA dues, and insurance on the home).
Myth: My heirs will not inherit my home.
Truth: Borrowers can leave their home an heir, after the homeowner passes or leaves the home for more than 6 months. It is up to the heir to either pay the balance on the reverse mortgage, or use the proceeds from the sale of the house to repay the mortgage.
Myth: The reverse mortgage will use up all of my equity.
Truth: While yes, the reverse mortgage does convert equity to cash, it is designed to preserve equity as well. A HECM (Home Equity Conversion Mortgage) reverse mortgage is a non-recourse loan insured by the FHA. This means the FHA insurance fund covers the shortage if there's not enough value in the home to settle the remaining loan balance at time of repayment. It is also up to the homeowner to decide how much of the reverse mortgage equity they are willing to use and when, the less you use, the higher your equity will remain.
Knowing the truth behind these misconceptions can help you to decide if a reverse mortgage is the best decision for your retirement needs. If you are interested in receiving more information about reverse mortgages or beginning the process of applying for one please contact me directly.