Secure Living Loans
Improving Lives and Fulfilling Dreams
Reverse Mortgage Myths
Myth 1 - The bank owns the house.
You as the homeowner are always the legal owner of the property. A reverse mortgage is a loan that, like a conventional forward mortgage is secured by a note and trust deed. The note is your promise to pay and the trust deed secures your promise to pay to your home. The trust deed is recorded at the courthouse and becomes a lien against the property.
Myth 2 – When the homeowner dies the bank gets all the remaining equity.
The bank only has a lien against the home which must be repaid when the last surviving spouse that is both on title and on the loan no longer lives in the property as their primary residence. The bank only gets the amount that is due them which includes principal, interest, service fees, and MIP insurance premiums.
Myth 3 – The bank sells the home when a reverse mortgage becomes due.
The selling of your home is a decision you or your heirs make, not the bank or lender. You or your heirs might also choose to refinance the home to repay the loan. It’s your home and it’s your choice.
Myth 4 – The homeowner or their family members could end up having to repay more than the home is worth.
All reverse mortgages are non recourse loans. This means that you or your family members will by law never have to worry about having to repay more than what your home sales for at fair market value.
Myth 5 – The home must be paid off or debt-free to qualify for a reverse mortgage.
Quite often one of the holdbacks that keep seniors from retiring is the inability to pay their traditional monthly mortgage payment and still lead the quality of life they are accustomed to. A reverse mortgage in this case is used as a tool to pay off the traditional mortgage thereby eliminating those monthly mortgage payments which then allows the senior to retire.
Myth 6 – Income taxes on proceeds from a reverse mortgage will need to be paid.
Proceeds from a reverse mortgage are tax free because it is a loan against your home that will need to be repaid at some point in the future and not ordinary income. It is recommended that you consult with your financial advisor.
Myth 7 – Reverse mortgage proceeds will impact Social Security and Medicare benefits.
In the same vain as being tax free, not considered as ordinary income, reverse mortgages typically will not affect regular Social Security payments or Medicare benefits. A reverse mortgage may affect benefits received from the Federal Supplemental Income (SSI) program, or other programs like Medicaid. It is recommended that the borrower speak with their financial advisor and/or appropriate governmental agencies.
Myth 8 – The Borrower’s children will be against their parents acquiring a reverse mortgage.
Many of the myths mentioned here have also been heard by the children of potential reverse mortgage borrowers. They may initially have reservations about their parents even considering the possibility of a reverse mortgage. Accurate information often times is the key to resolving these reservations and it is highly recommended that all family members who are involved in helping you make the decision take the time to become educated on reverse mortgage products.
Myth 9 – There are restrictions on how the proceeds can be used.
It’s your money so you get to decide how to spend it, without any restrictions. Naturally we recommend that you seek the advice of a financial planner.
Myth 10 – Reverse mortgages are only for those people who are struggling financially.
Reverse mortgages are all about improving quality of life. Quality of life to one person may mean being able to afford to pay the bills, to another it may mean having that dream kitchen they’ve always wanted, or to another it may be taking that European vacation they’ve always dreamed of.
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