Busting The Myths Of Reverse Mortgage
Theres a special mortgage on the market that offers homeowners 62 years and older a unique way to leverage their home equity into a convenient financial resource. Its called a reverse mortgage, and may be one of the most misunderstood home mortgage products around. If youre interested in taking advantage of this financial product, its important to separate fact from fiction to know what youre really getting into. Then you can decide whether a reverse mortgage might be right for you, or someone you know. Here are five common misconceptions about reverse mortgage, and the truth behind them.
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1. Its A Scam
In the past, scams involving reverse mortgages were a common occurrence; industry regulations were lax, and many consumers were ripped off when they signed up for the loan that they didnt really understand in the first place. Today, however, the reverse mortgage industry is nothing like it used to be, and there are more pros than cons when choosing such a loan.
Of course, there are always possibilities that a salesman will try to scam you, so be cautious. Do your research on the loan and the lender to find out if its legitimate and right for you. If they try to pressure you into signing without being ready, its better to walk away and find someone else.
2. You Will Lose Your House
When you take out a reverse mortgage, you do not sign over your ownership rights or lose control of your property. The title is still yours, and the house will remain yours to live in. What actually happens with a reverse mortgage is that the lender will add a lien to the title to make sure that you will eventually pay back the money they lend you. The only way you could lose your home is if you fail to pay your taxes or insurance, or dont do basic upkeep.
3. It Affects Your Medicare/Social Security Benefits
Another misperception is that you can lose your Social Security benefits or that your Medicare will be affected by taking out a reverse mortgage. This is not true. Your benefits are based on what youve accumulated while you were working. A reverse mortgage is just a loan, and has no impact on that. However, it may affect Medicaid or other need-based programs, because of asset restrictions. If youre on this type of assistance and wish to remain eligible, speak to a financial counselor for advice and suggestions.
4. Your Children Wont Be Able To Inherit The House
As mentioned above, with reverse mortgage, the house and title are still yours, the lender just puts a lien on it to guarantee repayment. Because of this, your heirs will still be able to inherit your home, but they will also inherit the payment of the lien as well. Fortunately, if they sell the house after your death, the loan will be paid off from the sale. However, if they intend to keep the house, they will need to pay off the remaining balance of the loan, or 95% of the homes appraised value, whichever amount is less.
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5. There Are Limits On How To Spend The Money From Reverse Mortgage
If a seller or anyone else ever claims that you must spend the money you are lent from a reverse mortgage on anything specific, dont listen to them. With the exceptions of a single-purpose reverse mortgage, which can only be used for a specific purpose, it is illegal for sellers to insist you need to use your loan to purchase other products or services they have, so steer clear away from those that do.
Whether you use your loan to help pay down your debt, maintain your home, or just for some extra cash in case of emergency, a reverse mortgage can be a great financial product if you shop around for the best offer. By separating the myths from the reality, you now have more knowledge in determining what kind of deal works best for you.