A reverse mortgage is a special type of home loan for homeowners who are 62 or older. Similar to a traditional mortgage, it allows homeowners to convert their home equity into cash to use for renovations, healthcare fees, and other expenses. It differs, however, in terms of repayment. One of the largest benefits of reverse mortgages is that homeowners are not required to make monthly mortgage payments for as long as they live in the home. Their balance increases over time and is repaid when the borrower no longer lives in the home.
It is important to note that a reverse mortgage is not the best solution for every borrower, but it can be a great financial tool for the right candidate. Unfortunately, many seniors who could benefit from this type of mortgage never take advantage of it simply because they do not fully understand the program and its benefits. Let’s debunk four of the most common misconceptions about reverse mortgages.
#1: The lender or government will own your home when you pass away.
False! One of the benefits of a reverse mortgage is that the homeowner owns their home in the exact same way that they would with a traditional “forward mortgage.” The reason why it is so advantageous is because it gives you access to your home’s equity without you having to give up your home’s title or make monthly payments. Similar to a traditional mortgage, your property will be passed down to your heirs. From there, they can decide if they want to pay off the loan and keep the home or sell it.
#2: My children will be held responsible for the repayment.
The reverse mortgage is a non-recourse loan insured by the FHA, meaning that any debt incurred cannot be passed on to your heirs. Even if the value of the home reduces or you owe more than your home’s value, you or your heirs cannot be held responsible for the debt in the event that it exceeds the home’s value. Your heirs, however, do have the option to repay the loan if they wish to keep it after you pass away, or move out of the home.
#3: If I have a reverse mortgage, I cannot sell my home.
A reverse mortgage functions like any other loan. Although it is best suited for people who don’t plan to sell anytime soon, you are not locked into the loan for the rest of your life. If you decide to sell your home the reverse mortgage will be paid off at the time of sale just like any other mortgage would. There are no prepayment penalties for paying the loan off anytime.
#4: I can always wait and get a reverse mortgage later if I want to
Your eligibility for a reverse mortgage can always change, which is why you shouldn’t wait.The reverse mortgage has become more difficult to get in recent years due to the FHA tightening their qualifying standards. There are also a variety of other factors that could affect you qualifying, such as higher interest rates, lower property values, or a deterioration in your credit. The first step to unlocking financial freedom in retirement begins with proactive planning!
Contact a lender, such as the team at CMG Mortgage, to help decide if a reverse mortgage is the best fit for you.