5 Most Common Myths of Reverse Mortgages


By Rob Ziebart

Obtaining a Government Insured Reverse Mortgage (HECM – Home Equity Conversion Mortgage) can make very strong financial sense in many situations. It can make sense for the senior who is either struggling financially, or would like to be more comfortable with their financial situation. It can also make sense for the senior who is financially secure, but wants to free trapped home equity and reposition it for growth.  Knowing the proper strategy for your Reverse Mortgage is critical, whether it is to take a line of credit that can grow over time; a lump sum (possibly to pay off an existing home loan or reinvest); or monthly payments for a predetermined period of time or for the life of the Borrower.

 

The 5 most common myths of a Reverse Mortgage:

Myth # 1:

I’ll be stuck in that home for life or I’m selling my equity to the bank. That simply is not the case. After receiving a reverse mortgage you can sell your home at any time without penalty.  Upon the sale of your home, the reverse mortgage company would receive a payoff equal to the principal (lump sum, payments, draws from line of credit etc.) you received prior, plus the interest that accrued on that amount over the months/ years that you had the mortgage.  Any remaining equity goes back into your pocket, or to your heirs/estate! A reverse mortgage is not a life sentence!

Myth

# 2:  I won’t qualify for a Reverse Mortgage because I’m struggling financially.  I have great news if that’s you: there are no credit score or debt to income ratio requirements to qualify for a reverse mortgage!  You can get the financial relief you need to get back on the path of prosperity, no matter how low your credit score or income may be.  No other mortgage has this level of flexibility in qualifying.  Since you aren’t going to have a mortgage payment with a reverse mortgage, you will only be responsible for paying your property taxes, insurance, and any homeowner’s association fees.

Myth # 3: My home has to be paid off in order to use a reverse mortgage. That can’t be further from the truth. In fact statistics show that approximately 60% of reverse mortgages use some or all of the proceeds to eliminate an existing mortgage (How would your lifestyle change if you were able to stop making your mortgage payment next month and just have your required monthly P&I payment added to your loan balance without hurting your credit and without penalty?)

Myth # 4: I’ll lose ownership of my home.  Not true!  You own your home, you and your spouse are still on title, and when you permanently vacate the home for more than six months to one year, you’re heirs have the right to satisfy the lien on the home if they want to keep it in the family. If they don’t want to keep the home, they have the right to sell the home, payoff the existing reverse mortgage and capture any remaining equity left in the home after the sale is concluded.  The only money the reverse mortgage company receives is what they had previously disbursed to you as a lump sum, monthly payments, or draws from your line of credit, plus the accrued interest on that amount, everything else goes to your heirs or your estate.

Myth # 5 (the most common): It’s too good to be true.  All of the Reverse Mortgages being marketed today are HUD insured through the FHA loan program and are standardized from lender to lender. People often wonder what would happen if the amount they owe on a reverse mortgage ever becomes more than the home is worth. The beauty of the FHA Reverse Mortgage is that if your loan balance becomes higher than your home’s value, it means absolutely nothing to you, your heirs, or your estate.

A reverse mortgage is what is called a non-recourse loan, which means you can never owe more than your home is worth.  You can’t ever be forced to start paying back the loan or to move out of your home if you were ever in a position of negative equity.  In the event of a death, the remaining spouse has no financial responsibility besides maintaining home owners insurance and paying the property taxes. They can occupy the home for as long as they live while continuing to have full access to the line of credit or monthly payments without interruption.

These are just 5 of the most common myths associated with the HECM Reverse Mortgage program.  If you have additional questions or would like a free Home Value Analysis and Reverse Mortgage Estimate, it’s as easy as a quick 3 minute call or a quick visit to our website.  Call me locally at my Office Line which is 352-304-5700 or on my cell phone at 352-875-6907 or visit the “Reverse Mortgage” tab at www.landmarkmortgageplanners.com .

Rob Ziebart is a Certified Mortgage Planning Specialist with Landmark Mortgage Planners and has been helping families with their home financing needs in the Lake, Sumter and Marion County area for the past 13 years.  Rob’s passion is to help people realize the benefits of a home loan and the numerous ways that wealth can be created through various Mortgage Planning strategies.