Why is there so much anxiety and so many concerns voiced about reverse mortgages from friends, relatives, and the media?
It is very simple. In the beginning, before HUD and FHA were involved in the program, some private reverse mortgages had fraud problems that hurt some retirees. The program is better and now heavily regulated, making it much easier to understand than years ago, but some of those old stories are still circulating.
People have always been afraid of the dark because there is uncertainty about what is there. You need to turn on the light when there is darkness to find out whether there are dangers or not. When you turn on the light, you will find a very different product — quite unlike the rumors and misunderstandings promoted by the news media and simple gossip.
Some of the people that pass on negative things about reverse mortgages are not mean spirited or purposely lying — they are simply misinformed, and it is our job to give you the best education available with the most up-to-date facts so you can make a clear and unemotional decision. Our Loan Officers are very experienced and well trained in a variety of senior, real estate, and retirement issues so you can feel much more secure about making a decision with one of your most valuable assets — your home. Here is a quick rundown of the top myths we encounter.
MYTH: I could lose my home and be forced to move.
FACT: As long as all loan terms are met, you cannot be forced to sell the home and/or move. Terms include living in the home as your primary residence, maintaining the home, and paying home expenses such as taxes and insurance.
MYTH: Your home will be taken away when you pass away and the family loses the rights to the property.
FACT: Because the house is in your name, you or your heirs make the decision to sell or pay off the mortgage balance. If the mortgage balance is too high, your payoff is limited to the value of the house, and the remaining amount is paid by the FHA mortgage insurance fund. Remember that your heirs can always purchase the home for 95% of the appraised value or the mortgage balance, whichever is lower.
MYTH: Your house must be debt-free to qualify for a reverse mortgage.
FACT: You can use a reverse mortgage to pay off a current mortgage provided the available FHA borrowing limit is high enough to cover your balance.
MYTH: The safest thing is a house “free and clear.”
FACT: In the event of an extended nursing home stay or a lawsuit, all your home equity can be lost that you spent your whole life to create. A reverse mortgage can unlock that equity and allow you to properly manage it for the benefit of your family. Talk to your financial advisor about how a reverse mortgage can help you do this, including helping you pay for longer-term expenses such as medical and/or nursing home expenses.
MYTH: I will be giving up the deed to my home, and I won’t own it anymore.
FACT: The deed always stays in your name, and you have all the rights that you do now. You can sell it, remodel it, and keep any equity that is left when you move.
MYTH: Reverse mortgages are too expensive.
FACT: There have been changes in FHA’s HECM reverse mortgage program in recent years that reduced a borrower’s costs. While any reverse mortgage is still more expensive than a traditional mortgage, they may provide you with more options than a traditional mortgage, such as no mortgage payments and a growth option (growth applies to the credit line’s unused funds). You must still continue to pay home expenses such as taxes and insurance and maintain the home.
MYTH: My children could get stuck with a big mortgage debt if I live too long.
FACT: Your children can never be liable for any amount over the value of the home because the loan is guaranteed by the FHA Mortgage Insurance Fund (FHA/HUD).