If you’ve been considering getting a reverse mortgage, chances are you may have come across some misconceptions about the process. Some of these misunderstandings include heirs not inheriting the home, outliving the reverse mortgage, and “selling” your home to the lender. In this blog, we aim to provide clarity on common reverse mortgage misconceptions and to help you get a better understanding of the truth about reverse mortgages so that you can approach your loan options with confidence.
A reverse mortgage is a loan option available to homeowners who are aged 62 or older. It enables seniors to convert a portion of their home equity into cash while they continue to live in their home. Designed for retirees, a reverse mortgage could help you supplement your income or pay for various expenses without having to sell your home or take on another monthly mortgage payment. Unlike a regular mortgage where you pay the lender, a reverse mortgage means the lender either pays you each month or in a one-time lump sum.
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THE LENDER WILL OWN YOUR HOME
Some homeowners may be concerned that by getting a reverse mortgage they are effectively “selling” their home to the lender. This, however, is completely untrue. When you originate a reverse mortgage, the title to the home remains in your name.
Similar to a traditional mortgage, a reverse mortgage uses your home as security for the loan. The lender will pay you in either monthly installments or as a lump sum depending on the type of reverse mortgage you get. Meanwhile, as the owner of the home, it will be your responsibility to continue to pay for property taxes, homeowner’s insurance, and make necessary repairs to maintain the home.
YOUR HEIRS WON’T INHERIT YOUR HOME
There are a couple ways to debunk the notion that your heirs will not inherit your home if you have a reverse mortgage. If, upon your passing, you have an eligible surviving spouse that is a co-borrower they can continue to receive reverse mortgage payouts, if applicable. However, if there are no co-borrowers named or your spouse is ineligible for a reverse mortgage, your reverse mortgage loan will become due.
Your heirs will be able to keep the home if they so choose, in which case they would need to repay at least 95% of the home’s appraised value or the full loan balance. Typically, your heirs or the executor(s) of your estate, will have 30 days to buy or sell the home or turn the home over to the lender. Usually, lenders will work with your estate or heirs on finding a repayment solution.
YOU COULD BE FORCED OUT OF YOUR HOME
Some borrowers may be concerned about getting forced out of their home. In order to get a reverse mortgage, the home you are taking the loan out on must be your primary residence. So, assuming there is no default, it doesn’t do your lender any good to “force” you from the home.
However, should you no longer utilize the home as your primary residence, your reverse mortgage loan would become due. Some examples include being away from the property for more than six months for nonmedical purposes or spending more than 12 consecutive months in a healthcare facility. Every situation is unique. If you have questions about residency rules and your reverse mortgage, reach out to a PrimeLending mortgage expert.
If you are still concerned about getting displaced, know that there are protections in place to prevent that from happening. One of the requirements for getting a reverse mortgage is that homeowners must complete counseling through a Housing and Urban Development-approved counselor to ensure you fully understand the loan terms and obligations.
OUTLIVING THE REVERSE MORTGAGE
Have concerns about “outliving” your reverse mortgage? This could stem from any unfamiliarity with how reverse mortgages work. If you are used to traditional loans with fixed terms or payout periods, it can be easy to assume there is a time limit on your reverse mortgage payout. Unlike traditional mortgages, a reverse mortgage does not have a predefined term so you can’t “outlive” the loan.
As long as you reside in the home, you won’t have to repay your reverse mortgage. That said, there will come a point when the loan is due which may contribute to the belief that someone could outlive their reverse mortgage. Should you vacate the property, the loan would become due and you would have to repay the funds.
Be sure you fully understand the details surrounding your loan repayment and its conditions. You can always contact your loan team with any questions you have about the reverse mortgage process.
A REVERSE MORTGAGE WILL AFFECT SOCIAL SECURITY AND MEDICARE BENEFITS
Income is at the top of everyone’s minds when it comes to getting a loan, but it can be exceptionally paramount for those on a fixed income. It is incredibly common for reverse mortgage borrowers to be concerned about whether or not the loan would impact their Social Security and Medicare benefits. The short answer is no, a reverse mortgage will not affect your government benefits.
The Social Security and Medicare benefits you receive are both based on age. Social Security benefits are based on the contributions you made throughout the years you worked. Both are unconditional benefits and are not dependent upon income which means that these benefits will not be affected by a reverse mortgage payout.
Understanding how a reverse mortgage works is a key component to confidently reaching your financial goals. Remember, you don’t have to go it alone. Having a trusted loan officer by your side to help guide you through the process can make all the difference. Contact your local PrimeLending loan officer today to get started.
These are brokered loan products. Not available in the following states: NY, NC, or HI. All credit decisions for brokered loan products will be made by the third-party lender. Restrictions and limitations apply. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners’ insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure. As required by FHA, you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance. Your current mortgage, if any, must be paid off using proceeds from your HECM loan. If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this. Generally, the money received is not considered income and could be tax free, please consult your tax advisor and appropriate government agencies for any effect on taxes or government benefits.
