Have you heard about reverse mortgages, but aren't quite sure if they’re legitimate or a scam?
Reverse mortgages can be a useful financial tool for older homeowners, but they’re not for everyone. Before considering one of these loans, it pays to know the myths and facts.
Here are four very common myths about reverse mortgages:
1. "With a reverse mortgage, doesn't my lender really own my home?"
No. The title to your home is in your name.
2. "When the last borrower dies, doesn't the lender take the home?"
No. When the last borrower dies, the estate may keep the home by paying any balance owed. Typically, the estate sells the home, pays off the loan, and distributes any equity to the heirs, just as it would with a regular mortgage.
3. "Don't the heirs have to make up any shortages if the home is a short sale?"
No. A major benefit of a government (FHA) insured reverse mortgage is that it is a NON-RECOURSE mortgage loan. That means that if the home ever has to be sold for less than is owed on the reverse mortgage, the estate cannot be held responsible for any shortage. This is a huge benefit that protects the estate from using other assets to satisfy the mortgage obligation.
4. "Aren't reverse mortgages for poor people?"
They used to be, but not any more. Reverse mortgages used to be need-based loans for seniors who found themselves running out of cash. They were expensive and hard to understand. They were a loan of last resort.
Today, 98% of reverse mortgages are guaranteed by the FHA. They incorporate important consumer protections, have competitive interest rates and moderate fees. Financial planners advising seniors often use reverse mortgage as part of an overall retirement strategy to maximize cash flow and save capital for future needs.
