Although they can be exceedingly helpful tools, reverse mortgages have gotten a bad reputation over the years. While aspects of common criticisms are sometimes based on truth, many corrections have been made over recent years, and the vast majority of issues stem from miscommunications and poor optics. In today’s blog, Family Home Loan Texas discusses some reasons why reverse mortgages have a bad reputation and sheds the light on misconceptions.
Spending Too much Too quickly
A major reason why reverse mortgages have a bad reputation is that individuals sometimes spend the majority of the money they receive very quickly after receiving it. While you can spend your money as you want, the funds you get should be used sparingly and for important expenses. You are, after all, using the equity you’ve built in your home as leverage to receive the funds, so if you deplete them frivolously, you are hurting yourself down the road. Luckily, the HUD requires a counseling meeting with potential borrowers to help advise them on responsible ways to use this type of loan. Moreover, the HUD has enacted more rules to deter quick, heavy spending. Insurance premiums go up if you try to withdraw more than 60% of your funds in the first year, if you want to spend more than 60%, it has to be for qualified expenses.
Miscommunications and Misunderstandings
Reverse mortgages also suffer because of falsehoods surrounding them. For starters, many people think that this type of loan requires borrowers to give up their home title. This is not true; you keep the title until you move out of the house. Similarly, the issue of home titles can be contentious for some families. For instance, a child of someone who takes out this sort of mortgage may expect to receive the home as part of their inheritance, but they will have to pay back the loan if their parents fail to do so in order to keep the house. That said, if the reverse mortgage holder uses their funds responsibly, they will probably increase the overall wealth that can be passed down.
In the past, individuals who were not eligible to be on their spouse’s reverse mortgage had to either pay back the loan or move out of the home when the other passed away. This is admittedly tragic, but there are now new rules in place that allow them to stay in the home and retain the title. They cannot borrow more from the line of credit, but staying in their home is a major improvement.
Contact Us So We Can Clear Up Other Misconceptions
We know reverse mortgages have a bad reputation, but we are happy to talk you through any misgivings you may have. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan.