Myths And Facts
Reverse Mortgage
Myths And Facts
Learn about the common myths and the facts behind reverse mortgages. Here is the clarity you need to make the most informed decision.
The short version
- You keep title and ownership of your home1
- Your heirs will not be responsible for more than the home is worth
- Monthly mortgage payments are not required
- You can sell your home whenever you wish
You immediately sign over ownership to your home.
You retain title to your home as long as you meet the loan guidelines and requirements, such as maintaining the property, paying all property charges such as property taxes, homeowner's insurance, flood insurance, and homeowners association dues (if applicable), and avoiding extended absences from the home longer than six months.1 As with any other mortgage, a lien is placed on the property to secure future repayment of the loan.
If you take out a reverse mortgage loan, your children won't be left with any of the home equity.
While the amount of equity typically decreases over time with a reverse mortgage, it doesn't mean there will be no equity left when the last borrower dies. There are several factors that go into how much equity will be left, such as home appreciation, length of the loan, and optional monthly payments. There can still be equity left for your children.
Your children will be responsible for repaying the loan when you die.
A reverse mortgage is a non-recourse loan, meaning that the lender can only be repaid from the proceeds of the sale of the home and not more than the value of the home. That means even if the home decreases greatly in value, the maximum repayment amount can only be up to the value of the home. While your heirs will not be responsible for the loan repayment, they will still have the option to refinance the loan to purchase it for themselves.
A reverse mortgage requires that you make monthly mortgage payments.
While you can choose to make mortgage payments, they are not required with a reverse mortgage. The borrower is still responsible to maintain the property and pay property taxes, homeowner's insurance, flood insurance, and homeowners association dues (if applicable).1
You must have your first mortgage paid off before you can qualify for a reverse mortgage.
While any debt on your home's title must be paid off at closing and you must have adequate equity in the property, it is not required that you own your home "free and clear" before getting a reverse mortgage.
You are not allowed to sell your home if you have a reverse mortgage.
You can sell your home if you wish and, just like any other mortgage loan, you must pay off the reverse mortgage at closing. There are also no prepayment penalties if you choose to pay off your loan early or make loan payments.
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Some additional reverse mortgage facts
A few more things worth knowing before you decide.
1There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowner's insurance and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
2Borrowers should seek professional tax advice regarding reverse mortgage proceeds.
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