Reverse mortgages: Myths vs. realities
STUART – There are a lot of misconceptions surrounding reverse mortgages. I’ve highlighted six here that seem to come up most often in conversations with clients. I hope these will help when considering whether a reverse mortgage is the right path for you.
Myth No. 1: The lender owns the home
You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home, maintaining the home according to Federal Housing Administration (FHA) requirements, and paying property taxes and homeowner’s insurance.
Myth No. 2: The home must be free and clear of any existing mortgages
Actually, many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.
Myth No. 3: Once loan proceeds are received, you pay taxes on them
Reverse mortgage loan proceeds are tax-free, as it is not considered income. However, it is recommended that you consult your financial adviser and appropriate government agencies for any effect on taxes or government benefits.
Myth No. 4: The borrower is restricted on how to use the loan proceeds
Once any existing mortgage or lien has been paid off, the net loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for any reason.
Many borrowers use it to supplement their retirement income, defer receiving Social Security benefits, pay off debt, pay for medical expenses, remodel their home, or help their adult children. You worked hard for this asset and prudence along with budgeting should be the proper approach to enjoying proceeds received from your HECM loan.
Myth No. 5: Only poor people need reverse mortgages
The perception of the reverse mortgage as an assist for the “poor” borrower is changing. Many affluent senior borrowers with multimillion dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.
Myth No. 6: My children will be responsible to pay off the loan
Reverse mortgages are a non-recourse loan. If your heirs wish to keep the home and the loan balance is more than the home value, they would only have to pay 95 percent of the appraised value to keep the home.
Donna M. Linton is a professional reverse mortgage adviser with six years’ experience. She currently works at Sterling Mortgage Services, 100 Albany Ave., Stuart.
© 2017 Journal Media Group, Donna Linton, YourNews contributor