A Reverse Mortgage converts equity in the home into cash to pay off debts, cover long term care, make home improvements or supplement your retirement income. But many people have misconceptions about Reverse Mortgages. The answers to these myths will help you see why so many people are using a Reverse Mortgage to make their lives more comfortable and more secure.
Myth 1: You sell your house to the Lender
Just like a traditional mortgage, you will retain ownership (title) and possession of your home. However, the lender will have a lien against the property as security for the loan. You could face foreclosure (loss of your home) if you do not pay for property taxes, homeowners insurance, and property maintenance or if you violate the mortgage obligations.
Myth 2: There are no income qualifications that may disqualify you
Income must be calculated and documented to determine that your residual income is equal to or exceeds the required amount of income based on your geographic region and family size.
Myth 3: You can be forced to leave your home
Taking out a reverse mortgage does not mean that you will be forced to sell your home or move out. You can continue to live in the home as long as you meet the obligations of the reverse mortgage. A reverse mortgage will become due and payable when the borrower dies, the property is no longer the borrower’s principal residence, the borrower does not occupy the property for 12 consecutive months for health reasons, or the borrower violates the mortgage covenants.
Myth 4: You will have to make a monthly payment
There is no monthly mortgage payment. However, homeowner must continue to pay insurance, HOA, and property taxes, and maintain the home.
Myth 5: Your home must be debt free to qualify
Even if you have a first mortgage or other debt, you may qualify. But Reverse Mortgage proceeds must first be used to pay off these debts.
Myth 6: You will lose your Medicare and Social Security benefits
With a Reverse Mortgage, the money you receive is a loan, not an income. Therefore, your Medicare and Social Security benefits are not affected. If you receive Medicaid or any other benefits where eligibility is determined by income or assets, contact the Social Security Administration, Area Agency on Aging or Legal Services.
Myth 7: Your heirs won’t inherit anything
Heirs will not inherit the home free and clear of any liens. They will be able to retain ownership of the home after your death if they either repay the Reverse Mortgage or pay 95% of the assessed value of the home.
Myth 8: My condominium does not qualify for a Reverse Mortgage
Reverse Mortgages are not limited to single family dwellings. You can also receive a Reverse Mortgage on condominiums, multi-family dwellings, and manufactured housing as well.