Six Reverse Mortgage Myths and Misconceptions
A Home Equity Conversion Mortgage (HECM), often called a reverse mortgage, can seem like a confusing financial tool for homeowners. Since they aren’t as familiar as traditional mortgages, and some of the rules governing them have changed over time, it’s not surprising that many myths and misconceptions exist.
If you’re over the age of 62 and own a home, it’s worth taking the time to learn about the HECM options available to you. Start with these explanations of six of the most common misunderstandings.
I won’t own my house anymore.
You will still be the owner of the home, even after you get a reverse mortgage. This is because you are not selling your home, just receiving a loan based on the property’s value and the amount of equity you have in it. Much like with a traditional mortgage, the lender will have a financial interest in the property. However, any repayment can be deferred until you leave the home. Regardless, you will remain the owner while the HECM is in place.
It will burden my heirs.
HECMs are non-recourse loans, meaning that the debt won’t become the responsibility of your heirs. However, your estate will retain any proceeds from the home sale that exceed the amount due. Additionally, the repayment amount is capped by the value of the property when the home loan becomes due, meaning a shortfall won’t impact your loved ones.
A HECM should be your last resort.
On the contrary, a reverse mortgage should be part of a larger financial plan and strategically strengthen your retirement plans. Some borrowers use the funds from a HECM to improve their ability to age in place, travel, fund a second home, or even support income-producing activities.
I won’t be able to sell my home if I get a HECM.
A reverse mortgage does not limit your potential to sell a home. Like a traditional mortgage, the HECM will need to be repaid at closing, but there are no restrictions that would prevent you from listing your property.
My spouse will have to move out when I die.
Often, spouses will be considered co-borrowers on the HECM and will each be able to remain in the home as long as they are able. In cases where one spouse was not eligible for a reverse mortgage or when the marriage occurred after the loan was originated, protections still exist. While any remaining disbursements may end, the spouse can typically choose to continue living in the home, however communication with the lender is vital.
There is only one type of reverse mortgage.
Actually, there are several types of HECMs. A traditional reverse mortgage is for homeowners who wish to stay in their current home. A HECM for Purchase combines the process of buying a new home with establishing a reverse mortgage, cutting down on closing costs. Finally, a HECM Line of Credit grows over time when unused and can be a valuable approach to managing your retirement plan.
Explore all the ways a HECM can help by downloading The Facts about Home Equity Conversion Mortgages. Ready to take the next step? Start a conversation with your local Open Mortgage lender with a call or click today.
- 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
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