Discover the Truth About Reverse Mortgages and Make Informed Decisions for Your Future
Imagine having a financial tool at your fingertips that could provide you with more security during retirement, only to be discouraged by misleading information. Reverse mortgages are commonly misunderstood, which ends up leading many retirees to miss out on the benefits they could be accessing.
Here, we will clear up common misconceptions, empowering you with accurate information so you can make the best informed decision for your financial future. We will address myths from requirements and costs to financial risks, to help you get the clarity you need to explore whether it’s the right option for you.
Reverse mortgages are specialized loans specifically for retired homeowners of a certain age. These loans allow you to convert a portion of your home equity into cash while you continue to age in the home you love.
Unlike traditional mortgages, depending on your loan agreement, no monthly mortgage payments are required. This type of loan is repaid when the borrower moves out, sells the home, or passes away.
Despite all of the benefits that can result from a reverse mortgage, they are often surrounded by myths and misconceptions that stem from outdated information about how the loan works. For more information on the history of Reverse Mortgages, check out our blog, What is a Reverse Mortgage?
Fact: You retain ownership and control of your home.
Reverse mortgages work by placing a lien on the equity of your home, a bit like a traditional mortgage, but ownership remains with you (just like with a forward mortgage). There are terms that you will have to meet to retain ownership such as paying property taxes and homeowners insurance, but you can stay in your home for life.
Fact: Reverse mortgages are a strategic financial tool that can be used by retirees of backgrounds and financial status.
There are many different ways to use a reverse mortgage for a more enriching retirement. Supplementing retirement income, funding medical expenses, and delaying social security benefits for increased payouts in the future are a few effective ways to leverage a Reverse Mortgage. Your financial advisor may even recommend one as part of a diversified retirement plan.
Fact: A reverse mortgage is a non-recourse loan, meaning that the heirs are not personally liable for any remaining balance beyond the home’s value. If the loan balance exceeds the home's worth at the time the loan becomes due, FHA insurance will cover the difference.
Heirs can then choose to sell the home, refinance, or walk away without any financial obligation.
Fact: Just like any other loan, there are costs associated with a Reverse Mortgage, and they are actually very comparable to a traditional mortgage.
Most of the fees, including origination costs and insurance are built into the loan structure, which reduces the need for excessive in out-of-pocket expenses. Not to mention, the benefit of no monthly mortgage payments, which can outweigh the costs for many retirees.
Fact: As long as you maintain the minimum requirements that are set in place by the loan obligations, you will be able to stay in your home indefinitely.
However, be sure that you stay up to date on your property taxes, homeowners' insurance and property maintenance, and homeowner association dues (if applicable), all of which will be explained to you. And if you do, you CANNOT be forced to leave.
Fact: HUD-certified housing counseling from HUD-approved housing counseling organizations ensures that borrowers are clear on the loan terms and the risks associated with using this type of loan product.
By law, all applicants are required to complete counseling with a HUD certified housing counselor to ensure that they make well-informed decisions and avoid any financial pitfalls.
Fact: You may qualify if you have enough equity, and your reverse mortgage can pay off the balance of any existing loans.
Many reverse mortgage borrowers use a loan of this kind to eliminate their current mortgage, decrease monthly costs, and free up cash flow for a more comfortable retirement.
Complex financial jargon, media misrepresentation, and outdated information are all reasons why each of these myths still exists. Many people are unfamiliar with how these loans work, and The Reverse Mortgage Academy is on a mission to change that.
If you want to learn more about the steps to get a reverse mortgage, understanding if you qualify, or tips to find the right lender for your situation, visit our Reverse Mortgage Blog Library to get your questions answered.
Understanding reverse mortgages is essential for making solid financial decisions in retirement. Contact the Reverse Mortgage Academy today to learn more!
