I received a call from a woman inquiring about a way to help her aging mother who owns a home but is currently in a nursing home. When I mentioned “reverse mortgage” she instantly stated, “I don’t want her in a reverse mortgage.”
Before I could get a better understanding of the circumstances to see if a reverse mortgage was even an option, the conversation ended. Her mind was already made up that reverse mortgages “are bad”, there was no opportunity for me to educate her on the facts of the program.
I’ve had seniors tell me their friends informed them to avoid reverse mortgages. When asked “Why?”, the response I receive is usually along the lines of: “We’ve heard bad things about them. They are a scam.”
But when I ask for a deeper explanation about the "bad things", seldom do I get a clear response.
Why are so many folks afraid to hear the facts from an expert?
Most people have preconceived notions about reverse mortgages. Comments posted in reaction to online articles and hard to source discussion forums can be filled with reverse mortgage misinformation. As I have often stated, there are many misconceptions of reverse mortgage reality.
Are you afraid to go to the doctor when treatment can make a difference for a health condition? Are you afraid to seek the services of an accountant or attorney? Why be afraid of a reverse mortgage professional when it could make a difference in your life?
Maybe your fear is based on the unknown. Maybe it’s based on misstatements you’ve heard. But you don’t have to be afraid of reverse mortgages!
Let’s look at the facts to ease your fears:
- A reverse mortgage is a mortgage just like any loan against the home but it has special terms for seniors 62 and older.
- The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title!
- There are no income or credit score requirements to qualify.
- No monthly payments required.
- There is no limitation on how the funds can be used.
- More options – Funds can be received in monthly payments structured as needed, line of credit (with a growth rate), lump sum, or a combination of these.
- Social Security and Medicare are not affected because it is a loan, not considered income.
- Medicaid (Medical in Minnesota) can still be received with the reverse mortgage.
- Borrowers can stay in the home as long as it is their primary residence or in the case of a couple as long as one borrower is still in the home as their primary residence. The due date on the mortgage is the youngest borrower’s 150th birthday.
- At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference. The bank does NOT keep the difference!
- The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership. So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is be sold for as long as they are not retaining ownership. Borrowers are not leaving a debt to their children.
- Just like any mortgage, borrowers still have the title and are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
- A reverse mortgage is a mortgage just like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.
- As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid. (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.)
- Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees. Even though many times they are considered expensive or high they compare to conventional loans, in fact the difference comes down to the FHA Mortgage Insurance Premium. You can see a comparison of the costs in my article, “Reverse Mortgage Costs – High or Mythical?”
- FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available.
- HUD insuring the reverse mortgage provides advantages including:
- Guaranteeing the funds are available for you.
- Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4% on the adjustable rate; 5.56% on the fixed) compared to other mortgages.
- Providing a line of credit growth rate (available only with reverse mortgages).
- Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.
- The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”
Everyone’s situation is different.
As a type of home equity mortgage with special terms for seniors, the facts of reverse mortgages should be received from a reverse mortgage expert to determine if the program is right for your situation. At least be willing to listen to an educated opinion, get the facts from an expert, not that it could be an option and don’t be afraid of them. A reverse mortgage may just improve your life during your retirement as they have done for hundreds of thousands of seniors.
