There are lots of myths surrounding reverse mortgages. They have been demonized for years and the misinformation surrounding them continues to mount. In reality, they are really helpful tools that have little to no downside for those who qualify. One of the most persistent myths about reverse mortgages is that you can lose your home if you get one. This is patently false, and, in reality, this can only occur if you move out of your house or stop paying property taxes on it. In today’s blog, Family Home Loan Texas talks about the reasons why you won’t lose your home and other persisting misconceptions surrounding these helpful loans.
You Will NOT Lose Your Home
This is one of the most nefarious, off-base myths about reverse mortgages. It is particularly egregious because it is antithetical to the core benefit of these loans. One of the primary reasons eligible adults seek a reverse mortgage is because they can remain in their homes for as long as they like.
As a refresher, a reverse mortgage is available to adults who are ages 62 or older. It works by leveraging the equity you have in your home to receive cash from a lender. As the name implies, you no longer have to make monthly payments; instead, you get money as a lump sum, monthly payments, or a line of credit. While interest does accrue, you do not have to pay anything other than closing costs until you move out of the home. This last point is exactly why this myth is so off-base. The primary selling point of a reverse mortgage is that you receive helpful funds AND you can remain in the home for as long as you want. This makes it an immensely helpful tool for retirees — especially those on a fixed income. Many individuals who are eligible for this loan want to stay in the home that they have been in for a long time, so this misconception is entirely misguided.
It should be noted, however, that there are reasons that can cause you to default on this loan. It requires very specific circumstances and boils down to holders of the loan actively breaking the terms. As mentioned above, this can occur when the house on which you’ve taken the reverse mortgage ceases being your primary residence. This can happen if you move or if you spend more than six months of the year living elsewhere. Realistically, you probably won’t be spending that much time in a year living somewhere else. Of course, everyone’s situation and circumstances are unique, but you are typically in control of where you spend most of your year.
You can also default if you stop paying property taxes, home insurance, and general upkeep of the house. That said, even if any of these situations occur — or if you move out — you can still keep the home if you pay back what you owe on the loan. This is all to say that you will never be kicked out of your home; you will always have the option to settle up and remain there for as long as you want.
Additional Misconceptions
Unfortunately, the myth of losing your home isn’t the only falsehood being passed around. In fact, there are several that persist that cause people who could benefit from a reverse mortgage to not consider it a viable option.
Myth 1: Your Children Won’t Inherit Your Home
When you take out a reverse mortgage, you keep the title to your home. This means that it is entirely yours and will continue to be until you move out or pass away. If you leave your children or heirs your house in your will, they will still receive it. If they want to keep the house they will be responsible for paying the loan back. Alternatively, they could sell the house and use the proceeds to settle the debt as well. However, they are free to keep any additional money from the sale. It is important to note that they (or you) will never have to pay back more than the full balance left of the loan or more than 95% of the home’s value — whichever is lower. If there is an outstanding amount after the sale, FHA insurance will pay the balance.
Myth 2: You Have To Fully Own Your House To Qualify
To be eligible for a reverse mortgage, you do not have to have your existing mortgage paid off. The only eligibility requirements are that you be 62 years or older, the house is your primary residence (not a vacation home), and is not a rental property. If you meet these, you will be eligible, regardless of how much equity you have in the house. If you do still owe money on your mortgage, the initial proceeds from the reverse mortgage will first go to paying off the difference. After that, you receive the rest of the funds.
Myth 3: It Is A Predatory Loan
All of the misconceptions about reverse mortgages can make it seem like they take advantage of those who could benefit. One of the very first steps of the process consists of meeting with a knowledgeable, independent counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD), to make sure you understand all aspects of the loan. This means that from the very start, you will have a full grasp of what to expect from a reverse mortgage. It is in both your and the lender’s best interests that you completely understand what this sort of loan consists of. When you have all the information, you can assess your financial needs to determine if it is the best option for you. Overall, you are completely in control during this process, and you are always given the tools to act in your best interests.
Contact Us To Learn More About Reverse Mortgage Facts
We hope that you won’t be swayed by the false information floating around. We believe that knowledge is power and that you should make your decisions based on facts rather than myths. If you have any questions, we are here to help. 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 and to receive a free, no-commitment consultation.