Setting the record straight!
Common Myths and Misconceptions about Reverse Mortgages…

Has your bank, your children, your financial advisor or any other trusted advisor told you that a “Reverse Mortgage is too new of a concept and doesn’t yet have any safeguards in place?”  This is the first misconception that I often hear being passed on to seniors.  “It’s a scam! It’s just another way to take advantage of seniors!”  This simply isn’t true, reverse mortgages have been around since 1961 and the first federally insured HECM (Home Equity Conversion Mortgage) loan was made in 1989. These loans have changed quite a bit through the years to become the Reverse Mortgages of today, a very safe financial tool with many consumer safeguards built into the program. 

The HECM is a government insured loan regulated by the department of Housing and Urban Development/Federal Housing Authority (HUD/FHA). Only FHA approved mortgage brokers can offer these loans. Most often during the originator’s comparison analysis it is the Reverse Mortgage that gives the senior the most money and the most flexible payment options.  For Example a couple both 75 years old with a $260,000 (appraised home value), could qualify for $179,140 principal limit with the HECM.  Most out of pocket costs to the borrower can also be financed into the loan. 

As with all of the reverse mortgages (Fannie Mae and Financial Freedom’s Cash Account) HECM it is a non-recourse loan, this means that the lender can only derive payment of the loan from the proceeds of the sale of your home when you move out permanently (for more than 12 consecutive months), or you pass away.   You can never owe more than what your house sells for (as long as this is fair market value for your property), even if your loan balance shows more than what you get from this sale, the excess will be “forgiven”.  Your heirs will not be saddled with any extra debt. You must keep up with the property taxes, homeowners insurance and the maintenance of the home.  If more than one person is on the reverse mortgage, the loan does not become payable until the last borrower moves out permanently or dies.

 Another myth about reverse mortgages is that the lender owns your home.  This is not true you retain title to your home NOT the lender.  The lender’s interest is limited to the outstanding loan balance.  You and your family or your estate owns your home and will be able to keep any of the leftover equity after repayment of your loan balance or the heirs can apply for a traditional forward mortgage for the balance and keep the home. 

Another misconception is that your home must be debt free to qualify for a Reverse Mortgage.  This is not true.  In fact you may have enough equity in your home from years of appreciation that you could potentially pay off that first mortgage and still have cash available to you.  How nice would that be to not only get rid of that monthly payment but to also have an additional tax free income available to you in a lump sum, a monthly payment or a credit line for that rainy day or unexpected emergency. 

Yet another myth that I hear is that there is a payment required.  There is no monthly payment required.  The payment is made to you the borrower from built up equity in your home, most likely your largest asset, turning it into a source of tax free cash.  Therefore there are no income, credit or health requirements needed to qualify.  You can do whatever you choose with the money.  Some Seniors have used it to buy a new car, purchase life insurance products, pay for medical necessities, travel, buy long term care insurance, gift it to their children while they are living, help family members with college tuition, make renovations to their home or pay for in-home care so that they are able to stay in their home for as long as they choose.  .

Retirement is the time of your life you deserve be able to do those things that you put off because of responsibilities to work and raise a family don’t let financial constraints hold you back from making your dreams come true now.  If you are 62 or older and own your own home you may be able to qualify for a reverse mortgage, call Amy Catling, GIA Mortgage’s Reverse Mortgage Specialist in Maine 1-866-442-4245 for a free, no obligation, reverse mortgage consultation or email her at acatling@reversemtgadvisor.com.