9 Major Reverse Mortgage Myths
There are a lot of myths out there that have grown up around the subject of reverse mortgages. This is somewhat due to misunderstandings on the part of homeowners, partially due to the complex jargon used when talking about financial products. It may also be partly due to predators seeking to take advantage of seniors. In this section, we’ll debunk some of those lingering myths.
Myth 1: The lender will take the title to your home.
No, you keep the title unless the loan defaults to the lender.
Myth 2: You must pay off your current mortgage before you can get a reverse mortgage.
No, you can use the reverse mortgage proceeds to pay off your current conventional mortgage.
Myth 3: Your lender can evict you from your home.
No, you retain ownership of the home and the loan does not come due until you move out of the home, sell it, or pass away.
Myth 4: You could leave your heirs owing more than the home is worth.
No, because this is a non-recourse loan, the lender can never do more than take the home itself. Even if the home sells on the market for less than the balance, the lender cannot pursue your heirs for the difference.
Myth 5: You can outlive the mortgage.
No, you cannot outlive the mortgage. It does not come due until the deaths of all homeowners, or until all owners have been out of the house for a full year.
Myth 6: You’re responsible for taxes with a reverse mortgage.
As the homeowner, you are responsible for property taxes, yes, but the loan proceeds do not count as income and do not affect your tax situation.
Myth 7: A home equity loan is the same thing as a reverse mortgage.
No, while they do have some similarities, they are very different.
Myth 8: You must have good credit to apply for a reverse mortgage.
Credit history does play a role in the reverse mortgage process (particularly FHA-backed loans), but it is not the deciding factor, and actually plays a smaller role than other factors. However, your credit does play a significant role if you decide to refinance a reverse mortgage.
Myth 9: A reverse mortgage should only be used as a last defense.
Not true – a reverse mortgage can be highly beneficial for many homeowners, but your unique personal situation will play a role.