9 Top Reverse Mortgage Myths
1. I could get forced out of my house.FALSE
A reverse mortgage is nothing more than a mortgage refinance with no payment due as long as you live in the house. What makes this loan even better is that an FHA insured reverse mortgage specifically states that you can not be forced out of your home as long as you live there as a primary residence, keep taxes and insurance paid, and keep up on repairs.
2. I would be selling my house to the bank.FALSE
Once again a reverse mortgage is just a refinance. You still have title to your house. The lender will add a lien on the property just like your current lender, but you will have complete control over your house.
3. I might "outlive" my loan.FALSE
While it is possible to end up owing more than your house is worth, when you get a reverse mortgage the lender will charge you a mandatory 2% mortgage insurance (or .01% on the saver program). This insurance guarantees that even if you live to be 110, you will not be forced to leave if you owe more than your home's value. Plus after the home is sold, if there is a deficiency, the mortgage insurance covers the difference so your heirs will not have to.
4. My heirs won't inherit anything.FALSE
Your estate will owe the balance on the reverse mortgage. The balance is however much you have spent plus any interest accrued. For example, let's say you got a reverse mortgage and owed $50,000 priciple and interest after 5 years. Then you decide to sell the house for $250,000. The lender will get $50,000 and you will get $200,000.
5. There are big out of pocket expenses.FALSE
As long as you have enough equity, all of the costs, with the exception of the appraisal, are included in the loan. That means there are very few out of pocket expenses during the reverse mortgage refinance process.
6. Social Security and Medicare will be affected.FALSE
Money from a reverse mortgage is not considered income because it is a loan. For this reason, a reverse mortgage does not lower Social Security or Medicare benefits.
7. I would have to pay income taxes on the reverse mortgage.FALSE
You already paid taxes on the money when you were putting the equity into your home. When you take it out again, it is not taxable.
8. A reverse mortgage is similar to a home equity loan.FALSE
First, a home equity loan may have many requirements such as high income, low debt, and
good credit. In many cases a reverse mortgage is easier to qualify for than a home equity loan.
Second, you can default a home equity loan and end up being foreclosed on by the bank for not making a monthly payment. This can never happen with a reverse mortgage because there is no payment due. Finally, a reverse mortgage usually has a lower interest rate.
9. It's cheaper to move to a smaller house.FALSE
While this may not be a bad strategy, you need to consider all the costs carefully before making this assumption. Selling a home and moving into a new home can be expensive. The costs associated with a move usually end up being more than you planned on, and then add in a typical real estate commission of 6%, which on a $300,000 home would be $18,000, the costs of moving can really skyrocket! With a reverse mortgage, you don't have the headache of finding a new house, plus with the recent reductions in fees, you will be surprised how affordable a reverse mortgage can be!