Financing Expert Debunks Myths About Reverse Mortgages
- Posted by admin on May 25th, 2007 filed in Reverse Mortgage Info
Although reverse mortgages have been part of the financial landscape for decades, many people cling to outdated fears about what a reverse mortgage is and how it works. According to Alain Valles, president of Direct Finance Corporation, a reverse mortgage lender based in Massachusetts, “Many people do not fully understand the reverse mortgage process and may be carrying some old and misguided ideas about what a reverse mortgage is and how it works.”
Reverse Mortgages have taken on increased importance and visibility in the past few years, most recently under the name of a Federal Government insured Home Equity Conversion Mortgage (HECM).
“A reverse mortgage is essentially just that — a mortgage in reverse, in which the lender pays you for the value in your home,” says Alain Valles. “This financial tool is growing in popularity as the ‘baby boomer’ generation reaches the minimum age necessary to qualify for a reverse mortgage — 62 years.”
Valles points out seven common misconceptions about reverse mortgages:
1. “I could lose my home.” With a reverse mortgage you retain ownership of your home and control of the title. You can remain in your home as long as you wish and cannot be evicted or forced to sell.
2. “My children will have to pay back the loan when I am gone.” A reverse mortgage is a “non-recourse” loan, which means that the lender can only be paid from the proceeds of the sale of your home, if and when you decide to sell. When the home passes on to your heirs, the lender is paid from the proceeds and your heirs retain any additional equity that has accumulated.
3. “I won’t qualify because I have bad credit and I am in poor health.” A reverse mortgage has no income, credit or health requirements. Even a current bankruptcy or pending foreclosure is allowed. The only requirement is that the homeowner be age 62 or older.
4. “I can’t afford to make monthly payments on a reverse mortgage.” There are no monthly principal or interest payments with a reverse mortgage. You can accept a lump sum payment, tax-free monthly payments or increasing line of credit.
5. “I won’t qualify because I have a mortgage on my home.” You can still qualify for a reverse mortgage if you have a current mortgage or other debt on your home. Those debts are paid off with the proceeds of the reverse mortgage.
6. “Only someone who is ‘cash poor’ needs a reverse mortgage.” Even if you do not have a pressing need for cash or monthly income, a reverse mortgage can be a terrific estate planning tool. You can invest the income, or you can use the money to purchase a second home, long term care insurance — for any purpose at all.
7. “A reverse mortgage is expensive.” Not necessarily. While a reverse mortgage generally costs more than a conventional loan, it is much less expensive than selling your home, relocating and assuming new monthly expenses. And income from a reverse mortgage is tax free.
Direct Finance’s Alain Valles points out that a reverse mortgage is not for everyone.
“But for many homeowners it is an excellent way to access the equity that has built up in your home without taking on additional debt or selling your home,” says Valles. He adds that the strict guidelines and protections built into the HECM/reverse mortgage programs by the federal government and adhered to by FHA-approved lenders make it a safe and secure process, and well worth investigating.
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May 26th, 2007 at 4:37 pm
Most of the horror stories connected with reverse mortgages are the fault of bad loan officers or mortgage brokers not informing clients of the true nature of the loan. But the facts are that a reverse mortgage is one of the best tools that a broker or loan officer may have in his arsenal in order to help the client.