Myths & Truths

1. The lender will own your home:

False:

You and your family or your estate continues to retain ownership of your home. The Lender does not take control of the title. The lender's interest is limited to the outstanding balance. The truth is that the home must be in and REMAIN in the name of the borrowers only. Since the Reverse Mortgage is a mortgage, a lien is placed on the property like all other mortgages. This assures that the lender will eventually be repaid but for only the amount owed which is principle, interest and closing costs, again just like any other type of mortgage. Another fact is that more than ninety-five (95) percent of Reverse Mortgages done are the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) version. This guarantees the full protection of the United States Government through the use of the required 2% insurance fee paid on all FHA Reverse Mortgages.

2. The lender cannot wait for me to “get out of my house” so the lender can be repaid:

False:

Reverse Mortgage lenders are not in the business of selling houses. The truth is, they are in the business of helping you keep your home and meet whatever financial needs you may have in order to help you maintain financial independence. Reverse Mortgage borrowers may remain in the home for as long as they wish. Should they decide to sell the home for any reason, the loan would then become due and payable.

3. My heirs will be responsible for my loan:

Yes & No:

The Reverse Mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from a refinance, from liquid assets or from the proceeds of the sale of the property. Since the Reverse Mortgage is “non-recourse,” the most the estate will be required to pay the lender is the value of the home at the time of repayment.

4. Reverse Mortgages are much costlier than other mortgages:

False:

The truth is that closing costs average only about one (1) percent more than that if a regular FHA mortgage were obtained on the same property. If you compared the Reverse Mortgage to many other conventional mortgages, the Reverse Mortgage could actually be lower in cost due to the fact that conventional mortgages can charge more than the two (2) percent origination fee allowed on all Reverse Mortgages.

5. The Interest Rate on Reverse Mortgages is higher than other mortgages:

False:

The FHA Reverse Mortgage interest rate is based on the one (1) year United States Treasury Note instead of the prime rate which most conventional mortgages use as their base. This gives the FHA Reverse Mortgage an interest rate lower than most adjustable conventional mortgages.

6. Requirements for obtaining a Reverse Mortgage are stringent:

False:

There are NO income or credit requirements. Even bankruptcy does not disqualify as long as it has been discharged.

7. A Reverse Mortgage is taxable and affects Social Security and Medicare:

False:

That is NOT the case. Reverse Mortgage proceeds are not taxable because they are not considered income but are, in fact, a loan. And since the United States Government sets Social Security, Medicare, and FHA Reverse Mortgage rules, they have all been made compatible.

It should be noted that Supplemental Security Income (SSI) and Medicaid may be affected if you exceed certain liquid asset amounts. Our Reverse Mortgage Specialist will show you how to make these programs compatible so getting a Reverse Mortgage will not affect these benefits.