As with many financial instruments, there are myths associated to reverse mortgages. To help you weed out the myths from the truth, we have compiled the following list of eight myths we’d like to debunk:
1. Reverse mortgages sell a home to the bank: Lenders aren’t in the business of owning houses; they want to make loans, and earn interest on them. A homeowner will keep the title to the house in their name. What a lender will do is add a lien to the title in order for the lender to guarantee that it eventually will repay the money it lends.
2. Heirs won’t inherit the house: As usual, the estate will inherit the house. However, there’ll be a lien upon the title for the quantity of the reverse mortgage, in addition to all accrued interest as well as mortgage insurance premium.
3. A homeowner might get forced out of his house: The HECM mortgage was specifically created to permit the elderly to live in their house for the remainder of their lives. A homeowner won’t be foreclosed on or evicted, as long as the borrower meets the loan’s obligations. For instance, a borrower has to live in the house as their main residence, continually pay required homeowners’ insurance and property taxes, and maintain the house according to requirements by the Federal Housing Administration.
4. Somebody may outlive reverse mortgages: The reverse mortgage will be due as all homeowners have passed away or moved out of the home for 12 consecutive months.
5. Medicare and Social Security is affected: Usually, government entitlement plans like Medicare and Social Security aren’t affected by reverse mortgages. However, need-based plans like Medicaid may be affected. It is better to speak to a financial advisor to study how the reverse mortgage might impact the eligibility of government benefits.
6. A homeowner will pay taxes on reverse mortgages: Proceeds from the reverse mortgage aren’t considered income and aren’t taxable. Speak to the tax advisor for more details.
7. This type of mortgage will include a lot of out-of-pocket costs: Usually, most lender closing fees and expenses mat be financed into reverse mortgage loans.
8. Reverse mortgages are like home equity loans: Reverse mortgage loans and home equity loans both utilize a property’s equity as collateral; but, there are also a few differences. Typically, home equity loans have to be paid back in month-to-month installments over five or 10 years. Typically, a reverse mortgage isn’t repaid until a homeowner passes away or moves out of the home for 12 consecutive months.
For more information on our reverse mortgages, contact Longbridge Financial today.
