Reverse Mortgages are almost completely misunderstood. Years ago, before Reverse Mortgages were heavily regulated, many private Lenders deceitfully took the title in Senior's homes or had appreciation clauses, in which the lender also took a percentage of the appreciation of the home in addition to the balance owed.
Due to these dishonest practices, the federal and state governments stepped in to regulate Reverse Mortgages and developed new loan programs.
Since the late 1980s, Reverse Mortgages have become the most regulated mortgage loan programs in the country. The distasteful practices of some lenders over twenty years ago have lead to many myths and misunderstandings of today.
These are common myths on Reverse Mortgages:
Myth #1 – The Bank Owns Your Home.
This is the most common misconception. You own your home and keep title as long as you own your home, just as you did or are still doing with your traditional mortgage. Once you permanently move out of your home or pass it on to your estate, the loan must be repaid. A Reverse Mortgage is to be paid when a property is sold. You keep the net proceeds from the sale of the property just as you normally would with any real estate sale. The Bank never wants to own your house.
Myth #2 – You Must Own Your Home “Free and Clear” to Qualify For a Reverse Mortgage.
You need to have equity in your home as it is the equity you are borrowing against. One of the benefits of a Reverse Mortgage is that it can be used to payoff your current mortgage so you can live payment free. You can even use a Reverse Mortgage to purchase a home and live payment free.
Myth #3 – You Won’t Qualify Because of Poor Credit.
A Reverse Mortgage works differently then a traditional mortgage. As you do not make any payments as long as you live in your home, your credit history is not important. You can even use a Reverse Mortgage to pay off a bankruptcy or get out of foreclosure and save your home. More Seniors find themselves in desperate finances than you may think; as fixed income has not been increasing nearly as fast as the cost of health care, electricity, property taxes, home insurance, car insurance, etc., has been rising.
Myth #4 – Only Desperate People Get Reverse Mortgages Who Are “House Rich and Cash Poor”.
Years ago, before the Federal Government developed and regulated Reverse Mortgages, this may have been true. Today’s Reverse Mortgage programs are an excellent financial planning tool that is used by Seniors from all walks of life to enhance their lives. While some borrowers need cash, others have no immediate needs and use Reverse Mortgages to plan for their future with home improvements; second home purchases; long-term care planning; and as a financial cushion for the unplanned events. No more worrying about money.
Myth #5 – You Don’t Have The Income To Qualify for a Reverse Mortgage.
Reverse Mortgages work the opposite of traditional mortgages and give you income versus using your income to make mortgage payments. Traditional mortgages require that you have the income to qualify for the loan, as you must make monthly mortgage payments to the Bank to pay the loan back. As you do not make any mortgage payments with a Reverse Mortgage until you leave your home, you do not need income to qualify. With a Reverse Mortgage, the Bank pays you versus you paying the Bank.
Myth #6 – A Reverse Mortgages Is Only Good If You Are Going To Move Out In a Few Years.
If you do not plan on staying in your home for at least four or more years, you should think about selling your home now versus getting a Reverse Mortgage. The longer you stay in your home, the more beneficial a Reverse Mortgage is for you and the cheaper the costs. A Reverse Mortgage is not a good solution to a short-term financial problem.
Myth #7 – You Will Not Have An Estate Left For Your Heirs After The Reverse Mortgage Is Paid Off.
This situation is almost impossible. The formula used to calculate the Reverse Mortgage loan amount you qualify for was developed by and with the federal government, and is very conservative to insure that this doesn’t happen. Many borrowers that first worry about a Reverse Mortgage bleeding the equity in their home dry, later wish they could get more money once they understand the conservative figures. However, these formulas are as a protection for you and the Bank. As Reverse Mortgages are non-recourse loans, you can never owe more than the value of the property.
Myth #8 – If You Owe More Than Your House Is Worth, Your Children Have To Pay It Off For You.
Reverse Mortgages are non-recourse loans as a protection measure for both you and your heirs. Unlike traditional mortgages, where you owe the balance regardless of the value of your home, you and your heirs are never responsible for more than the value of the home no matter how much you owe. The chance that your balance with a Reverse Mortgage will exceed your home value is very unlikely. There would need to be a drastic reduction in property values for this to occur.
Myth #9 – Once You Use Up Your Equity, They Cut Your Payments Off.
It is unlikely that your loan balance will be more than the value of your home. Even if your loan balance is more than the value of your home, the Bank must continue to make payments to you with the government insured Reverse Mortgage programs. If you lived to be 150 years old, or your home became worthless, the Bank is still required to keep making payments to you as long as you live in your home.
Myth #10 – The Bank Makes Money By Taking The Appreciation In The Value of My Home.
Your loan balance is what you or your heirs owe and nothing more. Years ago, before Reverse Mortgages were heavily regulated, many private equity lenders deceitfully had appreciation clauses, in which the lender also took a percentage of the appreciation of your home in addition to the balance you owed. These lenders were really a silent partner in your home. Some of these dishonest lenders even took title to your home and gave you a Life Estate. This is not the case with the safeguards of today's Reverse Mortgages. These bad situations of the past are the cause of many misunderstandings about Reverse Mortgages.
NOTE: The above answers apply to the Reverse Mortgage programs that Mortgage Trust Group offers. The regulations of several States allow for Reverse Mortgage/Equity programs that differ greatly from the above government sponsored and insured programs. Caution and legal advice is highly suggested for these reverse equity programs.The Reverse Mortgage programs Mortgage Trust Group offers have the following safeguards to protect Seniors:
- Mandatory Advance Counseling, to ensure that you understand fully about Reverse Mortgages and any other options, so you can select the option that best fits your needs.
- Government Limits on interest rates and loan fees.
- A ceiling on the repayment amount – it can never exceed the value of your home.
- Federally mandated consumer disclosures.
For more information, please contact us for a free and private consultation to learn if a Reverse Mortgage is the correct choice for you, your needs, and your plans.
Mortgage Trust Group, Inc.
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