A reverse mortgage is a government sponsored product for seniors 62 and over to stay in their homes and improve cash flow. Reverse mortgages have gained significantly in popularity in recent years. While they are becoming more widely accepted, there are still many myths and misunderstandings surrounding reverse mortgages, This article will explore some of those myths.
Myth 1: Reverse mortgages are only for desperate seniors
This first myth might have been true in the old days of reverse mortgages but not today. You can use reverse mortgages for a variety of reasons from estate planning, vacations, paying for college and paying down debt. In most cases obtaining a reverse mortgages can be a very wise decision. You can even use a reverse mortgage to purchase real estate.
Myth 2: The bank takes your house
This is simply on the case. The bank does not take your house in a reverse mortgage. Banks don’t want your house. When you decide to sell your house, you simply pay off the reverse mortgage out of the proceeds of the loan.
Myth 3: Reverse mortgages are predatory
Reverse mortgages are one of the most regulated of all mortgage loans. You are required to obtain counseling before applying for a reverse mortgage and there is a 3 day right to cancel like with a standard refinance.
Myth 4: Reverse mortgages are too expensive
While some financial products like home equity lines of credit do have lower closing costs, reverse mortgages can save you money especially if the alternative is moving. Most of the added costs of reverse mortgages are for the FHA insurance, which protects your home investment. Also, the added benefit of not having to make monthly payments far outweighs the costs.
Myth 5: I can end up owing more than my house is worth.
This is simply not the case. If the property declines in value and the reverse mortgage balance is higher than the property value, FHA insurance will kick in and cover the difference. You are protected, which is very nice in a declining market.
Myth 6: Reverse mortgages cause tax penalties and can influence Social Security benefits
This is another very common misconception. Reverse mortgage proceeds are tax free as they are simply a loan. Because of this, they do not factor in to Social Security benefits.
As you can see, reverse mortgages are a great way for you to keep your house and earn some extra income in your golden years. As with any financial decision, good advice is essential. You should seek competent help for a mortgage broker or lender who specializes in the field of reverse mortgages.