Reverse Mortgage Loan Blog

I received a lot of questions following my last column about reverse mortgages, which made me realize there are misconceptions about them. Here are the top eight misconceptions:

1. I’ll have to sign over the title, and the lender will own my home.

You remain on the title when you obtain a reverse mortgage. The lender does not own the home but does place a lien against the title.

2. The bank will take my house and throw me out when I use up my reverse mortgage funds.

The purpose of a reverse mortgage is to help you stay in your home. The loan does not become due until the last surviving borrower permanently leaves the home, regardless of the balance of funds. Under the terms of the loan, you are required to pay your property taxes and insurance and maintain the home in reasonable condition.

3. When my reverse mortgage comes due, the lender will sell my home.

Although repayment typically comes from the sale of the home, that’s determined by you or your estate. If the home is sold, you or your estate pays the balance of the reverse mortgage and keeps any remaining funds.

4. I’ll owe more than my home is worth, passing on debt to my children.

Reverse mortgages are nonrecourse loans, which means the loan is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize only the collateral. Therefore, if the home is worth less than the loan balance, you repay only the current value of the home at the time the loan becomes due.

5. I won’t qualify because of bad credit or lack of income.

Income and credit scores are not deciding factors for reverse mortgages. The lender conducts only a minimal credit check for identity verification purposes and to satisfy investor and government guidelines.

6. I’m not eligible because I don’t own my home free and clear.

You may qualify even if there is a first or second mortgage on the home. Any existing mortgage debt will be paid off first, with the proceeds from your reverse mortgage. You receive any remaining funds.

7. The lender will take part of my home’s future appreciation.

Before the Department of Housing and Urban Development became involved in the reverse mortgage industry in the 1980s, some loans did have a “shared appreciation” clause, but that is not true of most lenders today.

8. I don’t need a reverse mortgage — I’m not poor.

Reverse mortgages are not only for those with financial needs, but for those who want to improve their standard of living, enjoy their retirement to the fullest or make plans for their estate. The income from a reverse mortgage is tax-free.

Found here.

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