For better or worse, there is quite a bit of mis-information about reverse mortgages in general and like it or not, more and more people are asking the question of “is a reverse mortgage right for me?”
Here are 5 of the most common myths about reverse mortgages:
Top Five Myths About Reverse Mortgages
Myth 1. – The bank takes the house OR the borrower can lose the house.
With a reverse mortgage, the borrower retains title to the home throughout the life of the reverse mortgage. The borrower cannot, as a result of the reverse mortgage be forced out of his or her home, as long as property charges, such as taxes and insurance, are paid and the home is maintained in reasonable living condition.
Once the last borrower permanently moves out of the home, the loan must be repaid. Most properties secured by reverse mortgages still have equity when a maturity event occurs and therefore the borrower or his/her heirs choose to sell the home to repay the loan and preserve this equity for the benefit of the borrower or his/her estate.
Myth 2. – The home must be paid off or be debt-free to qualify for a reverse mortgage.
Reverse mortgages convert home equity into cash. As long as there is sufficient equity in the property, the homeowner may be eligible for a reverse mortgage. In fact, many seniors use a reverse mortgage to pay off an existing mortgage in order to eliminate a required monthly mortgage payment.
Myth 3. – When a reverse mortgage becomes due, the bank sells the home.
The borrower is in control of the home and retains title, not the bank or lender. So while it’s common for the borrower or the heirs to sell the home to repay the loan, it’s a decision the borrower or his heirs make. The borrower or the heirs might also refinance the home in order to repay the loan.
Myth 4. – It’s cheaper to move to a smaller house.
While this strategy might be right for different reasons, seniors need to analyze their costs carefully before making this assumption. The process of selling a home and moving into a new home can be expensive. The typical real estate commission of 6% on a $300,000 home would be $18,000. Add moving costs, and the undertaking to find a new home and the decision is not as simple.
Myth 5. – Children want the home or don’t feel comfortable with a reverse mortgage.
Seniors are encouraged to talk with their children about reverse mortgages. Many baby boomers are faced with trying to plan for their retirement and pay for their children’s education. Often, the children of many seniors are happy that their parents have a financial solution available to help them live more independently and financially secure.
Source: Financial Freedom