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Misconceptions
Established by Congress over twenty years ago, reverse mortgages are still a fairly new family of financial products. Though most seniors and retirees are familiar with reverse mortgages, a great many myths still exist that cloud the important and relevant facts. The list below will help you dispel the common misconceptions about reverse mortgages.
Common Reverse Mortgage Misconceptions:
When you obtain a Reverse Mortgage; the bank owns your home.
False: You will maintain the title as long as you live in your home, keep it maintained according to FHA requirements, and pay your property taxes and homeowners insurance.
Reverse Mortgages are very risky.
False: Reverse Mortgages are widely regarded as a safe financial product. The federal government has placed strict regulations and safeguards on Reverse Mortgages to protect seniors. Additionally, the National Reverse Mortgage Lenders Association (NRMLA) was created to develop and promote best practices in the Reverse Mortgage industry. Genworth Financial Home Equity Access Inc., is a member of NRMLA and strictly adheres to its Code of Ethics and Professional Responsibility.
Your home must be paid off to qualify for a Reverse Mortgage.
False: As long as there is sufficient equity in your home, you may be eligible for a Reverse Mortgage, even if you still owe money on your existing mortgage. However, the existing mortgage balance must be paid off at closing. You may be able to use the funds from your Reverse Mortgage, or another source to pay off that balance.
You could end up owing more than your home is worth when it is sold.
False: You or your heirs will not be required to repay more than the value of your home at the time of sale to repay the loan the loan even if your loan balance exceeds the sales proceeds.
Reverse Mortgage proceeds are taxable and will affect your Social Security and Medicare.
False: Reverse Mortgage loan proceeds are not taxable because the IRS does not consider them as income. In addition, a Reverse Mortgage will generally not affect regular Social Security payments or Medicare benefits. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. We recommend you consult with a qualitified professional to determine the specific rules.
The bank takes your home upon your death leaving nothing for your heirs.
False: A Reverse Mortgage functions like any other mortgage with a lien placed on the property. When the loan becomes due it must be paid. Generally, you can pay off the loan balance two ways: You or your heirs can sell the home and use the proceeds or use other sources to repay the loan.
There are restrictions on how you can use the money.
False: You can use the net proceeds of your Reverse Mortgage funds however you see fit—there are no limitations. However, if your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the Reverse Mortgage loan proceeds or prior to obtaining a Reverse Mortgage. Whatever your circumstance, we recommend that you speak to a financial advisor.
