For many home owners, hearing the term “reverse mortgage” causes a chill to run down their spine. In reality, these loans have some real benefits for home owners and unfortunately, have the victim of bad PR perpetrated by a few unscrupulous scam artists decades ago.
The term reverse mortgage usually refers to the FHA’s Home Equity Conversion Mortgage (HECM) program, which has been described by the U.S. Department of Housing And Urban Development as “a safe plan that can give older Americans greater financial security.”
People are living longer than ever these days and many seniors are finding they did not budget enough to lead the comfortable life they want during their retirement. Reverse mortgages allow the home owner to withdraw some of the financial equity they’ve built in their home over the years, rather than having to sell their home to reap the financial rewards.
For older home owners, reverse mortgages can help them “age in place” and live a comfortable life in the way in which they’ve become accustomed to.
Despite what the FHA has said regarding HECM reverse mortgages and all of the benefits they provide, many home owners simply aren’t aware of the real benefits these mortgages can provide them. Here are the some of the most common myths we hear the most from customers at HomeBridge regarding reverse mortgages.
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Myth: A reverse mortgage will cause my children to owe money after I pass away.
Reality: This is false. Once the home owner passes on, the heirs have the opportunity to repay the loan to keep the home, or sell the home and repay the loan. The heirs will never owe more than what the home is worth and if the home sells for more than is owed, they can keep the difference.
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Myth: I can’t use my reverse mortgage to pay for a vacation or a new car.
Reality: While many people use their reverse payments to finance in home healthcare or home improvements, the payments can be used, for the most part, without restriction.
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Myth: I have to be retired to qualify for a reverse mortgage.
Reality: There stipulations for an FHA HECM reverse mortgage require that the applicant be 62 years of age or older, but it does not require them to be retired. As long as the home owner is over 62 years old, they can be employed full time, have a part time job or be fully retired.
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Myth: In order to qualify for a reverse mortgage, the existing mortgage needs to be fully paid off.
Reality: This is also false. Although the borrower must have considerable equity already built up in the home, the existing mortgage does not need to be paid off. A mortgage loan originator can explain this in detail over the phone.
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Myth: Your level of income and savings will determine if you qualify for a reverse mortgage.
Reality: Unlike a traditional mortgage, there are no income stipulations in terms of how much, or how little, the home owner makes or has saved up in their bank account.
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If you’d like to discuss if you qualify for a reverse mortgage or have questions answered about any other type of mortgage product, please contact a mortgage loan originator in a branch near you for a consultation.