No more scare tactics: NiC gives you the facts instead of Reverse Mortgages myths.
1. Myth: You have to sign your home over to the bank when you take out a reverse mortgage.
FACT.With a reverse mortgage you still own your home and must keep paying property taxes and insurance, just like you always have. No one but you is on the title to your property.
2. Myth: Reverse mortgages mean saying goodbye to the equity in your home.
FACT. A reverse mortgage doesn’t do anything to your home’s equity that any other mortgage wouldn’t do; the only difference is that you don’t have to repay a reverse mortgage until the death of the last surviving spouse, and assuming the amount you owe on the reverse mortgage is less than the property’s value, your heirs would inherit the difference. Though keep in mind that there is an effect of negative amortization on the home equity and that the loan balance is growing each year due to non-payment, insurance and interest accrual.
3. Myth: You can’t sell your home once you’ve taken out a reverse mortgage.
FACT. You can sell your home whenever you want to even if you’ve taken out a reverse mortgage, because there are never any pre-payment penalties. The proceeds from the sale are simply allotted to pay off the reverse mortgage, and you (or your heirs) receive whatever amounts remain.
4. Myth: No one should ever take out a reverse mortgage unless they have to.
FACT. You can use the proceeds you receive from a reverse mortgage however you want, and homeowners are finding all sorts of ways to use them today. To pay for home improvements is one increasingly common use for a reverse mortgage, because unlike a home equity loan, reverse mortgages don’t require the borrower to repay the loan until death of the last surviving spouse. Others have used reverse mortgages to help pay for grandkids going off to college. And while it’s true that you don’t have to repay your reverse mortgage during your or your spouse’s lives, you certainly can make payments if you want to reduce your indebtedness. You can decide to make payments that cover only the interest or principal and interest. It’s totally up to you.
5. Myth: Reverse mortgages are too costly.
FACT. Reverse mortgages are regulated by HUD-FHA, and so are the costs and fees, which for the most part are financed in the loan. So you don’t need to lay out much cash when getting a reverse mortgage. Origination fees are up to $2,500 on homes valued less than $125,000 on homes more than $125,000, lenders can charge 2 percent of the first $200,000, plus 1 percent of the amount more than $200,000, up to a cap of $6,000.
Also expect to pay an initial mortgage insurance premium at closing. Also, you will be charged an annual Mortgage Insurance Premium (“MIP”) that equals 1.25 percent of the mortgage balance over the life of the loan. There are also likely to be closing costs for things like appraisals, title searches, inspections, recording, mortgage taxes and credit checks… and sometimes a monthly fee of $30-$35 for servicing the loan.
6. Myth: The amounts you get from Social Security can be less after a reverse mortgage.
FACT. Proceeds from a reverse mortgage are not taxable because they’re not income and therefore they cannot affect your Social Security or Medicare benefits.
7. Myth: You need a free and clear home to get a reverse mortgage.
FACT. A reverse mortgage can pay off your existing mortgage, so you can eliminate your monthly mortgage payments for good. All you need is some equity, and in cases where your lender has agreed to accept a reduced amount as full satisfaction of your loan, not even that.
8. Myth: To qualify for a reverse mortgage you need good credit and sufficient income.
FACT. As on 2014, your FICO score and your income are part of qualifying for a reverse mortgage, but nowhere near the way they are when applying for a traditional mortgage. The amount you can borrow is based on your age and your home’s value, up to $625,000, and the older you are, the more you can borrow.
9. Myth: Your heirs are stuck paying off your reverse mortgage after you’re gone.
FACT. Reverse mortgages are non-recourse loans and that means no one will ever have to pay more than the home is worth. After the death of the last surviving spouse, even if you owe more than your home is worth, your heirs won’t owe anyone a nickel.
10. Myth: It’s OK if only one spouse is older than 62 when applying for a reverse mortgage.
FACT. Both you and your spouse must be older than 62 years of age and both of you have to be listed on a reverse mortgage as borrowers. The reverse mortgage is not due until the last surviving spouse dies, or sells the home, or doesn’t use the home for 365 consecutive days.
Bottom line: Reverse mortgages are making dreams come true for hundreds of thousands of older Americans all over the country. Many seniors had to change their plans for their retirement years as a result of the decline in home prices, but by using reverse mortgages, some are finding it easy to get their plans back on track. Nothing works like a reverse mortgage. It’s a federally insured loan that, depending on your age, makes it easy to turn a percentage of your home’s value into tax-free cash that you can use however you want.
The question has to be asked: Who wouldn’t want a credit line that increases each year? Many seniors take out reverse mortgages as open credit lines, instead of taking cash in a lump sum or payments, because when you set up a reverse mortgage this way, the amount you can borrow increases each year.
A 70-year-old borrower who would have access to a credit line of roughly $215,000 today would be able to borrow $285,000 five years from now if he or she didn’t use the credit line until then. And five years later, approximately $412,000 could be borrowed all without a requirement that the loan be repaid until after the death of the last surviving spouse.
There’s simply nothing that will do what a reverse mortgage can do, so by getting all of the facts today, you could start making your retirement dreams come true tomorrow.
If only I was 62…