TC Palm’s recent article, “Myths vs. realities surrounding reverse mortgages,” highlights some of the misunderstandings and misinformation that commonly come up when talking about reverse mortgages.
Myth # 1: My lender will own our home. No, you will keep the title and ownership of the home during the life of the loan. You can also sell your home at any time. The loan won’t become due as long as you keep satisfying the loan obligations, including living in the home, maintaining the home according to FHA requirements and paying property taxes and homeowner's insurance.
Myth # 2: The home has to be free and clear of existing mortgages. This is also not true. Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.
Myth # 3: You must pay taxes on the loan proceeds when they are received. Reverse mortgage loan proceeds are tax-free. They are really not considered income. However, there may be an impact on government benefits eligibility.
Myth # 4: The borrower is limited on how to use the loan proceeds. When any existing mortgage or lien has been paid off, the loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for anything, such as supplementing household retirement income, deferring receiving Social Security benefits, paying off other debt, paying medical expenses, remodeling the home or helping family members.
Myth # 5: Reverse mortgages are for poor people. This is not true. The notion that reverse mortgages help only the poor borrower is changing. More affluent senior borrowers with multimillion dollar homes and healthy retirement assets now use reverse mortgage loans as part of their financial and estate planning.
Myth # 6: My children will have to pay off the loan. Reverse mortgages are a non-recourse loan. Therefore, if your children want to keep the home and the loan balance is more than its value, they’d have to pay 95% of the appraised value to keep the home.
Reference: TC Palm (February 21, 2017) “Myths vs. realities surrounding reverse mortgages”