5 Reverse Mortgage Myths
As with many types of mortgages, reverse mortgage loans can be complicated and there may be a number of misconceptions about how the product works. You should always be aware of the myths and the realities.
Here are 5 Common Myths About Reverse Mortgages*
Myth # 1: The lender owns the home.**
False. As the borrower, your name remains on the title and the home is still yours just as it would be with any mortgage. You're required to continue paying real estate taxes, homeowner's insurance, and providing basic maintenance to your home. Once you no longer live in the home as your primary residence, the loan balance, including interest and fees, must be repaid: This is usually done by the homeowner or their estate selling the house.
Myth # 2: The home must be free and clear of any existing mortgages.*
Actually, many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.
Myth # 3: Once loan proceeds are received, I will have to pay taxes on them.*
Reverse mortgage loan proceeds are tax free because it is not considered income; however, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Myth # 4: The borrower is restricted on how to use the loan proceeds.*
The cash proceeds from the reverse mortgage loan can be used for anything. Many borrowers use it to supplement their retirement income, delay receiving social security benefits, pay off debt, pay for medical expenses, remodel their home, or help their adult children. Prudence along with budgeting should be the proper approach to enjoying the proceeds received from your reverse mortgage.
Myth # 5: Only low-income people need reverse mortgages.*
The perception of the reverse mortgage as an assist for the low-income borrower is changing - many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.
*All applications are subject to approval. Terms and conditions apply. This is not a commitment to lend. Speak to a licensed loan officer for more details about available loan products and full eligibility requirements. Loan products are subject to change and may not be available in all cities or states. **Lender owns the home if loan balance is not paid.