Learn the facts from the fiction of reverse mortgages
As with many financial products, reverse mortgage loans can be complicated. As a result, many myths and misconceptions dilute the potential benefits of this loan. We want to better help you understand how a reverse mortgage works and how it can be used as a flexible, reliable financial tool for you.
Fiction: The lender owns the home.
Fact: You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home, maintaining the home according to the Federal Housing Administration requirements, and paying property taxes and homeowners insurance.
Fiction: The home must be free and clear of any existing mortgages.
Fact: Actually, many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments. If this were the case, the lender would set aside a certain amount of money from the reverse mortgage loan for you in order to pay off the amount owned from your previous mortgage.
Fiction: Once the loan proceeds are received, you have to pay taxes on them.
Fact: Reverse mortgage loan proceeds are tax-free, as it is not considered income. However, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits such as Medicare and Social Security..
Fiction: The borrower is restricted on how to use the loan proceeds.
Fact: The cash proceeds from the reverse mortgage loan can be used for any reason. Many borrowers use it to supplement their retirement income, delay receiving Social Security benefits, pay off any existing debts, pay for medical expenses, remodel their home, or help their adult children and families. You have worked hard for this asset and prudence along with budgeting should be the proper approach to enjoying proceeds received from your reverse mortgage.
Fiction: Only poor people need reverse mortgages.
Fact: The perception of the reverse mortgage as an assist for the “poor” borrower is changing. Many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning. Reverse mortgage borrowers are actually working closely with financial professionals and estate attorneys to enhance their overall quality of like to better enjoy their retirement.
Disclaimer: This material is not from HUD or FHA and the document was not approved by the department or government agency.