Reverse mortgages are becoming more and more popular as many seniors are discovering that they do not have the funds they need to live the way they want in retirement. Unfortunately, a lot of people who could benefit from a reverse mortgage decide not to get one because they’ve heard false information.
There are a lot of myths about reverse mortgages that simply aren't true, yet they persist. That’s why we would like to take a minute to clear up 5 common misunderstandings about reverse mortgages. If you have any questions about the below information, don’t be afraid to reach out and contact us.
Myth 1: You can only get a reverse mortgage if you don't have any other debts.
So many people automatically assume they can’t get a reverse mortgage because they already have a mortgage or two on their home. Some people even believe that they won't qualify for a reverse mortgage because they have credit card or car loan debt.
Truth: The majority of seniors who qualify for a reverse mortgage have debt. It doesn't matter how much or what kind of debt you have to qualify for a reverse mortgage. It's even possible to get a reverse mortgage if you have multiple mortgages on your home already.
It is important to note, however, that the money you make from a reverse mortgage first has to go to pay off any debts and liens that are against the home. In other words, all of your existing mortgages are paid off first, and then you can decide what to do with the rest of the proceeds.
For example, let’s say you qualify for a reverse mortgage of $500,000 and you already have two mortgages of $100,000 and $200,000. All $300,000 of the home debt would have to be paid off from the money of the reverse mortgage, and then the remaining $200,000 would go to you.
While this seems like a significant cut, keep in mind that the payments and interest for these two loans are gone too. This brings down expenses and provides some extra money for other things.
Myth 2: If I get a reverse mortgage, the bank could kick me out of my house whenever it wants.
Truth: While we understand why this is such a big fear, it simply cannot happen. Reverse mortgages don't affect the ownership documents of a home. That means that a senior who takes out a reverse mortgage will maintain the title to his or her home throughout the entire life of the loan. There is no way to default on a reverse mortgage, so the bank cannot take the home for non-payment. Of course, you will still need to pay property taxes and insurance, and failure to make these payments can result in the bank foreclosing. Keep in mind, however, that this is no different than a conventional loan.
It's also important to note that the bank cannot force you out of your home earlier than you want to leave. Money from a reverse mortgage is often provided as either a lump sum or a series of set payments over a defined period of time. Once this period of time is up, however, the bank cannot make you leave the home, or even force you to sell in order to repay the loan. You can decide how long you want to continue to live in your home, again, as long as you are current with your property taxes and insurance.
Myth 3: Reverse Mortgages are only meant for people who are having money problems.
Truth: While there are a number of people who use a reverse mortgage to help them when money gets tight, a lot of other seniors use them as a financial tool.
Many adults would say that their biggest asset is their home, yet they cannot use the money they have tied up in their home without selling or taking out a loan that they have to start paying back immediately. Furthermore, leaving the money tied up in the house means that you are allocating a huge portion of your resources to one investment.
Keep in mind that you can decide how much money to take out as part of a reverse mortgage. A lot of seniors have decided to take out a reverse mortgage and invest the proceeds in a variety of ways. This diversifies their portfolio and makes them more financially secure.
Myth 4: The money received from a reverse mortgage will lower the amount I get from Social Security.
Truth: Reverse mortgages cannot affect the amount of money you get from Social Security or Medicaid. These programs do not look at the current amount of assets that a person has when determining the amount of benefits that they qualify for. Of course, we encourage you to check with your local Social Security administration office to confirm that a reverse mortgage will not affect your current level of income.
Myth 5: No one can really find an objective adviser who will help them decide if a reverse mortgage is right for them.
Truth: Because this is such a major decision that affects your financial life, the federal government has heavily regulated reverse mortgages. One of the biggest rules that all lenders have to follow is that every homeowner who is considering a reverse mortgage must first consult a HUD-approved counselor. These counselors are paid by the government, and have no financial interest in recommending or not recommending a reverse mortgage. That means that everyone who gets a reverse mortgage also gets the unbiased advice of a financial professional.
Still, it’s very important to choose a reverse mortgage broker you can trust. Although there are many reputable reverse mortgage brokers like The ARAMCO Group, the few bad apples seem to spoil everyone’s reputation. Look out for these warning signs:
The lender quotes you an interest rate without delving into the details of your unique financial situation
The lender makes you feel rushed
The lender asks for upfront money
The lender seems to just tell you everything you want to hear
Don’t sign or agree to anything with a lender you don’t trust. Follow your gut. Your lender should have a good reputation, positive reviews, and a good standing with the Better Business Bureau. Choosing a certified reverse mortgage professional (CRMP) ensures that you’re working with a qualified, knowledgeable person. The CRMP designation is only earned after numerous classes and a comprehensive exam are passed. CRMPs are a rare breed—there is only a handful nationwide. In fact, our own Mehran Aram is a designated CRMP with over 20 years of experience in the mortgage industry.
If you’re a senior interested in a reverse mortgage, don’t believe everything you hear. Talk to a trusted professional and weigh your options wisely. Feel free to contact us for help, or look around our site for more reverse mortgage information.