Misconceptions of Reverse Mortgage Loans: Myth vs Fact

MYTH #1 :

The bank or lender takes ownership of my home.

FACT: You or your estate continue to retain ownership

of your home's title, as long as you keep current with

property taxes, insurance, and maintenance.

The lender’s interest is limited to the outstanding

loan balance as a lien on the property.

MYTH #2 :

A reverse mortgage loans requires me to make monthly

mortgage payments.

FACT: There are no monthly payments required on a

reverse mortgage – you have the freedom and flexibility

to pay as little or as much as you want, as often as

you’d like. However, as a borrower, you are responsible

for real estate taxes, homeowners insurance, and

property maintenance.

MYTH #3 :

My heirs will be responsible for repaying the loan.

FACT: Since reverse mortgages are non-recourse loans,

the lender can only derive repayment of the loan from

the proceeds from the sale of the property. Even if the

value of the home is dramatically reduced, you or your

heirs will never owe more than the value of the home

when the loan is repaid. And when the loan becomes

due, your heirs have several options on what they can

choose to do with the home. They can repay the loan

and keep the home for themselves, sell the home and

keep any remaining funds, or do nothing with the home

and deed it to the lender.

MYTH #4 :

To qualify for a reverse mortgage, my home must be

debt-free and paid off “free and clear.”

FACT: You can have a mortgage or other debt on your

home’s title as long as you have adequate equity in the

property. If there’s a mortgage on your home, the

money from the reverse mortgage is first used to pay

off that loan.

MYTH #5 :

Reverse mortgage lenders just want to sell my house.

FACT: You can stay in your house for as long as you

want, as long as you meet the terms of the loan, which

includes taxes, insurance, and maintenance. Should you

decide to sell your home or relocate, the loan would

then become due and payable.

MYTH #6 :

If I get a reverse mortgage, I will be left with nothing

to leave to my heirs.

FACT: Since you’d be borrowing money against the

value of your home, and accruing loan interest and

mortgage insurance payments, the loan amount would

increase over time. That said, the home may appreciate

in value – so it’s possible that there may be money left

over from the sale of the house that would go to your

heirs, once the loan is paid.

MYTH #7 :

I cannot sell my home if I get a reverse mortgage.

FACT: A reverse mortgage is like any other loan.

If you sell your home, the reverse mortgage will

be paid off at closing. There are no prepayment

penalties for paying off or selling the home

in advance.

MYTH #8 :

A reverse mortgage should be used as a last resort.

FACT: A reverse mortgage is a powerful financial tool

that can be an important part of your overall financial

plan. From paying off an existing mortgage to delaying

Social Security, or even creating an emergency line of

credit, it’s a flexible product designed to give you

options. In fact, many financial planners have begun to

discuss reverse mortgages with clients who need

additional sources of retirement funding.

MYTH #9 :

Reverse mortgages are expensive.

FACT: Reverse mortgage loan origination costs and

interest rates are comparable to those of traditional

mortgages. There are FHA insurance costs that some

traditional mortgages do not require, but they are

relatively small. Plus, lender closing costs and fees can

typically be financed into the loan, so there is little

required from you out of pocket.

MYTH #10 :

If my lender or servicer changes, my loan terms are

subject to change.

FACT: The terms of your loan are defined at closing

and by law, cannot be changed, as long as the deed

remains in force.