Reverse Mortgage Myths
Like other financial products, a reverse mortgage loan is obscured by many misconceptions regarding how it works. Many individuals are often deterred from learning more about a reverse mortgage because they hear negative or off-putting information that usually from hearsay or speculation. It’s important to make the facts about this product clearer in order to present a true picture for those who may need it.
Does my home need to be full paid off to qualify for a reverse mortgage?
No. You can apply for a reverse mortgage even if you still have an existing mortgage. In fact, many borrowers actually use their reverse mortgage proceeds to pay off their existing mortgage so that they no longer need to make monthly payments.
How much will the monthly payments for the reverse mortgage be?
Zero. A reverse mortgage does not require any monthly mortgage payments at all. Repayment of the loan is done later on, usually when the home no longer becomes the main residence of the borrower(s).
Who will own the home when the reverse mortgage closes?
The homeowners or borrowers will continue to own the home throughout the whole life of the loan. They will keep the title to the home even after the loan becomes due and payable, and then it will pass on to their designated heirs. The lender will at no point own the home.
Are there restrictions on how I can use my loan proceeds?
There are no restrictions on how you can use the funds you receive from a reverse mortgage. There are many ways you can use the available amount you can be eligible for, such as to pay for daily living expenses, clear credit card debt, renovate home for aging-friendly features, or even pay for health care costs.
Do I have to pay taxes for my loan proceeds?
No. Proceeds from a reverse mortgage loan are not considered income, and therefore are not taxable.
How do I actually repay the loan?
The reverse mortgage loan becomes due and payable once the borrower passes away, sells the home or moves to a different permanent residence. Once this happens, the loan balance must be paid, usually by selling the home or using other sources of funds.
Will my heirs inherit any debt from my reverse mortgage?
The most common type of reverse mortgage, called a Home Equity Conversion Mortgage or HECM, is a non-recourse loan, which means that no debt will be passed on to the heirs if the original borrowers passed away. In most cases, the home will be sold to pay the loan balance, and the account will be settled even if the sale price is less than the actual balance. However, if the sale price is larger, any remainder left after paying the loan balance goes to the heirs.
A reverse mortgage can be a complex financial product, but for the right people, the additional funds it can provide may make a big difference in their lives. If you’re eligible for a reverse mortgage and are looking to consider applying for one, get as much reliable information as you can and avoid being jaded by reverse mortgage myths and misconceptions.