4 Common Misconceptions About Reverse Mortgages
The term “reverse mortgage” gets a bad rap.
But before we talk about what reverse mortgages are not, let’s define what they truly are: Loans allowing homeowners 62 and older to access a portion of their home equity via lump sums, monthly draws or a growing line of credit.
Though the definition is straightforward, there’s some misunderstanding about this type of loan. We’ve taken on some common misconceptions about reverse mortgages to set the record straight.
Misconception #1: A reverse mortgage is just a last resort loan.
Reverse mortgage loans aren’t one size fits all, which means borrowers have options when it comes to how they want their loan payouts. Open Mortgage founder Scott Gordon says, “These days, there are a number of advanced strategies where reverse mortgages are also being used by seniors with income and other assets, to extend the life of their retirement funds, or optimize other returns.”
Misconception #2: When you take out a reverse mortgage, the title of the home transfers to the mortgage company.
When you take out a reverse mortgage, you keep the title to your home; ownership does not transfer to the mortgage company. Additionally, the loan repayment will not become due until an owner moves, sells the home, or passes away, and owners must still be able to pay for homeowners insurance, property taxes, and HOA fees.
Misconception #3: If a borrower passes away, heirs will take on reverse mortgage debt.
Reverse mortgages are considered “non-recourse loans,” which means that if the home is worth less than the loan balance, the lender cannot go after additional assets (other than the home itself) for the remainder of the loan. After the death of a homeowner that has taken out a reverse mortgage, heirs will have a choice to keep the home and pay back the loan, or to sell the home on the open market (with the intent to pay back the loan with sale proceeds).
For more information on what happens when a reverse mortgage loan becomes due, click here.
Misconception #4: A reverse mortgage won’t help you if you choose to move from your current home.
There are many types of reverse mortgage loan options, and one, the HECM for Purchase, allows seniors to “purchase a new principal residence using loan proceeds from the reverse mortgage.” This is especially helpful for seniors who hope to age in place in an owned home, but worry their current house will eventually create problems (due to stairs, a lack of hand railings, narrow doorways, etc.). This would also apply to seniors who prefer to move closer to family members.
If you’re considering a reverse mortgage and want to learn more, please contact an Open Mortgage loan originator today. We’re here to educate and empower you in all seasons of homeownership.
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment
Is there a stipulation clause somewhere that I have missed, that tells me I cannot go on a 6-month vacation (leave my home for 6 months)?
In most cases, you would have to prove you maintain your residence as a primary residence during your six months away