10/29/2024
Let’s debunk common myths and provide a clearer understanding of how an FHA Reverse Mortgage works and who can benefit from the program.
Myth: The lender takes ownership of the home.
Fact: Just like a traditional forward mortgage the bank does NOT own the home; contrary to popular belief. The fact is that until a home is foreclosed on, the bank does not own the home. This is the exact same with a reverse mortgage. How can this be as someone might ask? If someone slips on a banana peel on the front porch..., Do they sue the bank or the homeowner? If someone wants to do some home improvements to the home?...Does the homeowner call the bank to ask permission to fix something the bank owns? No, of course not. Again, the Reverse Mortgage is just a mortgage ... nothing more.
The loan is secured by the property, but the senior continues to hold title and can live in the home as long as they meet the loan requirements, such as paying the property taxes, homeowners’ insurance and that they live in it as their primary residence.
Myth: Heirs will be burden with the debt.
Fact: Since the bank doesn’t own the home, 100% of the remaining equity is still available for the heirs subject to the appropriately facilitated Will and or other Estate related documents. The loan itself is a non-recourse loan and if the sell and it doesn’t clear the debt the heirs or the estate are not responsible for the balance owed, but if it sells for more than enough then the heirs get whatever’s is left over. In many ways, this program is much better for the heirs. Unlike a traditional forward mortgage loan, which would still require a monthly payment to be made even after the senior passed away, the HECM Program allows up to a maximum of one (1) year before it has to be paid off by either selling or refinancing the home.
Myth: Only low-income individuals qualify.
Fact: The Reverse Mortgage of today is utilized by a far larger percentage of wealthy and the financial astute clients as a financial tool. Reverse Mortgages are not figured on income or credit score. For this reason the common misconception is that this loan is a loan of last resort...it has proven to be far from that premise
Myth: You can’t use a reverse mortgage if you have an existing mortgage.
Fact: Replacing one’s current mortgage with a HECM/Reverse Mortgage is very popular, because it pays off an existing mortgage, for some of the reasons shared above. Think about this, if one has a $1 million dollar home and they owe $400K in mortgage debt on it. Ask yourself this question, what is worse than having around $600K in home equity that one can’t touch and is totally at the risk of the nursing home and or the market? The answer is having MORE than $600K in equity. Each time someone who is 62 years old or better pays a house payment...the balance goes down and the value typically goes up. In other words... STOP making unnecessary payments on your home. Keep that portion of your equity in your pocket for you and you are STILL leaving potentially over half or more of your equity in your home
Myth: I can’t sell my house once I do a reverse mortgage, because I am locked in.
Fact: You can sell your home at any time without a penalty, just like most traditional forward mortgages. Again, it’s just a mortgage
Myth: My house is paid for so I am unable to do a reverse mortgage.
Fact: A home with No mortgage is Best time to do a reverse mortgage, because you can set your money disbursement in a number ways from a lump sum disbursement, to a monthly
or even a combination of getting some at closing to setting up a line of credit. The line credit option is not your typical line credit, but it has a growth rate function to it. The growth rate on the unused balance grows at a .5/ (1/2%) then the rate you are being charged on the used balance. Here is a little math to this that may help for a better understanding. Let’s assume that one has $100K in the available line of credit that hasn’t been utilized and the
growth rate is around 7% (the rate being charged on the used balance is 6.5%). Believe it or not this $100K line of credit would grow to around $107K in just one year! That $7K in growth can be used to pay property taxes, insurance, travel, used as a warm handed gift versus a cold handed one and etc. The options are many and very powerful.
In conclusion, reverse mortgage can be a viable financial option tool for seniors 62yrs or more vintage, but it is very important to separate fact from fiction when considering this is as an option. By debunking these common misconceptions, individuals can make an
informed decisions about whether a reverse mortgage is a viable option to meet their financial needs and retirement goals.
For more information or a personal consultation please reach out to me at 615.481.3733 or by email at [email protected]
