Reverse Mortgages have been around for longer than most people realize. They were around before Reagan was president. It was from this PRE Reagan era, where MOST of the misconceptions about the Reverse Mortgage come from.
If you are like many folks, you have heard THINGS about the Reverse Mortgage that may or may not be truthful. The most important thing to remember, is the US Government now insures and regulates Reverse Mortgages making them one of the most regulated and secure financial products on the market today.
Post Reagan FHA & BMCD Regulations are in place to ensure the safety and protection of today’s Senior Citizens.
I’m here to dispel some of the most common misconceptions that have been and still are floating around today. Below are some of the most popular ones. If you don’t see yours, just give me a call.
Misconception: If I get a Reverse Mortgage, the bank will own my home
Truth: No, the bank does NOT own your home. You retain ownership and remain on title. Just like any other mortgage, the lender is only the lien holder, but you are the owner.
Misconception: If I get a Reverse Mortgage, I can’t move
Truth: You are free to move if you see fit. You can sell your home at any time and keep the remaining equity for yourself. Remember, it’s still your home.
Misconception: My kids will owe the balance of the loan when I die
Truth: Your children/heirs have absolutely no financial responsibility for the loan on your home. When you pass away, they will have the choice of keeping the home, selling it, or walking away.
Why would they walk away? If the home, at the time of your passing, is worth LESS than what is OWED, they will have no financial gain by keeping it. They could walk away and let the bank sell the home and have no financial obligation for it.
However, if the home is worth more than what is owed, they can sell it and keep the money for themselves.
Misconception: If I die, my spouse won’t have a place to live
Truth: As long as both of you are on the loan/title, if one of you predeceases the other, the surviving spouse will be able to continue living in the home under the terms of the Reverse Mortgage, for the rest of their life. No Mortgage Payments Ever!
Misconception: I heard that the bank can take my home if the loan balance exceeds the value of the home?
Truth: NO. REGARDLESS of what happens to the value of your home after you close your loan, the bank can never take your home back. The FHA Mortgage Insurance included in your Reverse Mortgage protects you from this ever becoming a problem.
As long as you pay your property taxes, home owners insurance and continue general upkeep of the property, you are ensured a long life of free housing.
Misconception: The fees are huge on a Reverse Mortgage
Truth: You’re absolutely right. They can be. That is why its so very important to understand the program fully before going through with it.
One of the fees in a Reverse Mortgage, that typically is not charged in a Conventional Mortgage, is the mandatory FHA Upfront Mortgage Insurance Premium. This is a fee that is set by FHA/BMCD at 2% of the appraised value of the home.
It is required on every federally insured Reverse Mortgage. This can make the fees seem much higher than usual. On a $300,000 home, the FHA Upfront Insurance Premium would be $6,000.00. When you take away that fee, the fees charged with a Reverse Mortgage are actually similar to any other loan.
Remember, FHA Mortgage Insurance is actually your friend. It’s what protects you and your spouse from the threat of losing your home due to market and value changes. It also protects your heirs from any financial responsibility in the event that you owe more than the home is worth after you pass away.
Also important to keep in mind, YOU do not pay this fee out of pocket. It is paid through the loan.
If you have any questions about reverse mortgages, you can ask a question or leave a comment below, give us a call or click the green “help” tab on the right side to chat live with someone.