There are tons of misconceptions about reverse mortgages that often frighten people who would otherwise be ideal borrowers. There are also Federal regulatory protections exclusive to reverse mortgages that many people are unaware of, which are quite friendly to borrowers.
The information below will help you to learn more about how reverse mortgages work and provide the truth about common myths.
If you have more questions about anything covered or not covered here, contact the Tucson reverse mortgage solutions specialist Sandy McKee today!
How Do Reverse Mortgages Really Work?
Reverse mortgages are a variation of home equity loan, which are specifically designed for the needs of seniors. What these loans do is allow seniors to access the value that would otherwise be trapped in their home equity without requiring them to sell the home, as would otherwise be necessary.
When lenders provide reverse mortgages, they do not take the title to the home. It really is a mortgage in reverse. They pay the homeowner in return for gradually assuming more of the home equity. A succession of regulatory reforms by the Federal Housing Administration (FHA) beginning in 2013 and as recent as 2015 have also limited the size of initial payments, required that lenders perform credit checks on borrowers of reverse mortgages, and implemented other changes to protect borrowers.
As a result, reverse mortgages allow homeowners in Tucson to access value in their home. They are specifically designed to help seniors to remain in their homes while enjoying a higher quality of life.
Busting Dangerous Myths About How Reverse Mortgages Work
The unfortunate fact is that there are many established interests who try to take advantage of seniors and who try to benefit from preventing seniors from getting the most out of their retirements. There is also ordinary human ‘fear, ignorance, and doubt’ at play, which prevents many deserving people from realizing the advantages that they could with reverse mortgages. The following myths and facts can help you learn more about reverse mortgages to determine if this is the best solution for your retirement goals.
MYTH: Your lender takes the title to your home.
FACT: The title is managed like any other mortgage. Even with a reverse mortgage, you are still on the title. When the house becomes vacant or the terms of the loan end, the loan has to be repaid, most frequently through the sale of the home, but the title remains non-negotiable. Although you retain title, your loan is secured by a lien and foreclosure can occur if you do not pay your property taxes and homeowner’s insurance, maintain your property, and otherwise comply with the loan terms.
MYTH: You need good credit for reverse mortgages.
FACT: While the requirements are not as strict as regular mortgages, your credit and income will mostly be reviewed to ensure you can stay current on the taxes, insurance, and maintenance of your home throughout the life of your reverse mortgage loan.
MYTH: Reverse mortgage borrowers owe more than their home is worth.
FACT: All our reverse mortgages are “non-recourse loans”. This means that you can never owe more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage. If your loan is a Home Equity Conversion Mortgage (“HECM”), the reverse mortgage debt may be satisfied by paying the lesser of the mortgage balance or 95% of the current appraised value of the home.
MYTH: I already have a mortgage, so I cannot get a reverse mortgage.
FACT: A reverse mortgage can be used to pay off your current mortgage – eliminating your monthly payments right now. However, as the borrower, you must continue to pay taxes and insurance and costs associated with maintenance on your home.
MYTH: There are stipulations on what I can spend money from reverse mortgages on.
FACT: You can use your loan proceeds however you wish – and the proceeds are not considered taxable income!
MYTH: My children will have to use other assets to pay off the reverse mortgage.
FACT: Again, reverse mortgages are non-recourse loans which means you can never owe more than the value of the home at the time the loan becomes due. Additionally, family or heirs will only need to repay up to 95% of the purchase price of the house if they elect not to sell it to cover the full balance.
MYTH: Only low-income seniors can get reverse mortgages.
FACT: Seniors from all income levels can use reverse mortgage loans as an effective tool to reduce monthly expenses, have more financial freedom, keep savings to cover unexpected expenses, or to reduce financial stress during retirement.
MYTH: You decide whether or not a reverse mortgage is right for you without any objective help.
FACT: All reverse mortgage borrowers are obligated to go through a counseling process with an objective neutral third party advisor approved by the FHA. They explain all of the options and tradeoffs involved before you sign anything. This makes sure you are making a choice that is best for you.
MYTH: If I outlive my life expectancy, the lender will evict me from my home.
FACT: Reverse mortgage lenders put no time limit on how long you can remain in your home and not sell your home. You still have the title, so you cannot be evicted so long as you keep the home maintained, stay current on property taxes, and pay insurance fees.
If you have more questions about how reverse mortgages work and whether or not reverse mortgage solutions are right for you, contact Sandy McKee in Tucson, AZ today.