January 20, 2010R
Recent headlines pointing to the detriments of reverse mortgages aren’t getting the story straight. One of the nation’s leading reverse mortgage lenders, Generation Mortgage Company, wants to separate fact from fiction.
“Because so many Americans over the age of 62 are facing significant financial stress due to dropping retirement and savings account balances, as well as higher healthcare costs, many groups are targeting seniors under the guise of helping them,” said Scott Peters, CEO and President of Generation Mortgage. “HECM reverse mortgages are Federal Housing Administration-insured products and are heavily scrutinized by regulators and legislators looking to protect seniors’ best interests. As a result, more than 600,000 American seniors have obtained reverse mortgages that have enriched their lives by allowing them to stay in their homes and pay off their bills.”
The top 9 most common reverse mortgage myths include:
Myth: If I take out a reverse mortgage the lender will own my home.
Fact: False. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due.
Myth: My children will be responsible for the repayment of the loan.
Fact: False. Reverse mortgages are non-recourse loans. That means, if the property is sold to pay-off the loan when the homeowner passes away or decides to leave the home for other reasons, there will be no mortgage debt for the family and heirs to repay. The maximum amount owed is the current market value of the house. If the homeowner’s heirs want to keep the home, they would pay the balance in-full to the reverse mortgage lender.
Myth: I can’t get a reverse mortgage if I have an existing mortgage.
Fact: False. With enough equity, you may be able to pay off your existing mortgage or other debt with the reverse mortgage. The reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. Seniors who take out reverse mortgages are free to do anything they want with their reverse mortgage proceeds. Paying off an existing mortgage is the number one reason most seniors take out a reverse mortgage.
Myth: Only low-income seniors get reverse mortgages.
Fact: False. Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments, many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.
Myth: If I outlive my life expectancy, the lender will evict me.
Fact: False. Reverse mortgage lenders put no time limit on how long seniors can stay in their homes. Since homeowners still own the property, lenders cannot evict them, provided they follow the program guidelines.
Myth: There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs.
Fact: False. Borrowers are required to work with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD) in their local communities. This educational session helps them make the right decision for their unique situations.
Myth: There are restrictions on how reverse mortgage proceeds may be used.
Fact: False. There are no restrictions. The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve.
Myth: Reverse mortgage lenders take advantage of seniors.
Fact: False. Seniors who have been victims of reverse mortgage lending schemes are extreme exceptions and typically victims of unsavory lenders. As a consumer, you should only work with lenders who are Better Business Bureau and National Reverse Mortgage Lenders Association (NRMLA) members and adhere to those organizations’ strict Code of Ethics and Standards for Trust.
Myth: I’ve heard I won’t qualify for a reverse mortgage because of my limited income.
Fact: Unlike a traditional mortgage where mortgage payments must be made each month, a reverse mortgage pays you. Because of this, many seniors who do not qualify for traditional financing are eligible for a reverse mortgage.