Don’t Be Misled by These Reverse Mortgage Myths
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Author: Karen Zabel Reverse mortgages continue to grow in popularity among senior citizens seeking to tap into the equity they’ve established in their homes. But despite their widespread use, reverse mortgages are still a source of mystery among many homeowners. The following list addresses some of the more common myths associated with the reverse mortgage loan process.
Myth 1: The bank can take my home whenever they like
With a reverse mortgage, the homeowner retains the title to the home. As long as the standard obligations " such as keeping the home maintained and paying for property taxes and home insurance " are met, the homeowner cannot be forced out of the home. The loan does not become due until the homeowner permanently leaves the home, at which time the borrower or his or her heirs must repay the mortgage, often through sale of the home.
Myth 2: When the reverse mortgage term is up, the bank will take the home
When a reverse mortgage comes due, which occurs when the homeowner permanently leaves the home, the homeowner still retains the title to the home. At the discretion of the homeowner or his or her heirs, the home may be sold to repay the loan or it may be refinanced in order to repay the loan and avoid selling the home.
Myth 3: A reverse mortgage is solely for homeowners in dire financial need
Today’s reverse mortgages are being used more and more commonly as financial and estate planning tools to allow senior citizens of all financial backgrounds enjoy their retirement. Even homeowners with multi-million dollar homes can use reverse jumbo mortgages to gain access to the equity in their homes, incorporating them into their legacy estate planning. If you’re interested in using the equity as a legacy, talk with a financial advisor about the best steps to take.
Myth 4: If I take out a reverse mortgage, my Medicare and Social Security benefits will decrease or be eliminated
In most cases, a reverse mortgage will not affect any Social Security or Medicare benefits the homeowner receives. Medicaid or Federal Supplemental Security Income benefits may be affected to some degree. If you receive benefits from any of these programs, it’s a good idea to speak with a financial advisor or the overseeing government agency to see how you might be affected.
Myth 5 " I can only use the money from a reverse mortgage for specific expenses
The money you receive from a reverse mortgage is yours to spend as you like. There are no restrictions. Some homeowners use the proceeds from their reverse mortgage to pay off debts or meet regular, recurring bills, while others may use the money for travel, to make a once-in-a-lifetime purchase, or to make monetary gifts to their heirs or loved ones. It’s your money, and you can decide how it is spent.
Myth 6: I will need to pay taxes on the money I receive from my reverse mortgage
Like a home equity loan, the money you receive from a reverse mortgage is already your money, and you will not need to pay additional taxes on it. To ensure you understand any potential tax implications you or your heirs may encounter when the loan comes due, it’s a good idea to consult with a financial advisor.
Myth 7: My children will be unhappy if I take out a reverse mortgage
Many seniors worry that their children will not approve of their choice to receive a reverse mortgage. If you’re considering a reverse mortgage, it’s a good idea to talk about it with your children to avoid any potential surprises. Most adult children welcome reverse mortgages as a financial solution that will allow their parents to live more comfortably and happily in their retirement years. You may be surprised to learn that your children view your decision with relief, rather than dread.
Myth 8: Reverse mortgages are unregulated and risky
Actually, reverse mortgages are overseen and regulated by the U.S. Department of Housing and Urban Development (HUD), and any homeowner considering a reverse mortgage must, by law, receive financial counseling from a HUD-approved counselor to ensure they understand their rights and the structure of the loan itself.
Myth 9: Because I owe money on my home, I cannot qualify for a reverse mortgage
As long as you have enough equity in your home, you can still be eligible for a reverse mortgage. In fact, the proceeds of your reverse mortgage can be used to pay off your existing mortgage.
Reverse mortgages continue to increase in popularity, but like any unfamiliar product, misunderstandings can affect a homeowner’s willingness to explore these useful loans. By understanding and “busting” myths surrounding reverse mortgages, you could uncover a potential source of funds that can make your life more enjoyable during retirement.
Karen Zabel is a freelance writer who writes about a variety of topics including a reverse mortgage.
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