8 Top Reverse Mortgage Myths*

1. I could get forced out of my house.

   FALSE     A reverse mortgage is nothing more than a refinance with no payment due as long as you live in the house.  What makes this loan even better is that an FHA and HUD insured reverse mortgage specifically states that you can not be forced out of your home as long as you live there!

1. I would be selling my house to the bank.

   FALSE     Once again a reverse mortgage is just another type of loan and this trasaction is just a refinance.  You still have title to your house.  The lender will add a lien on the property, but you will have complete control over your house.

1. I might “outlive” my loan.

   FALSE     FHA and HUD reverse mortgages are designed specifically so you can not outlive the loan.  When you get the reverse mortgage, the lender will charge you a mandatory 2% mortgage insurance.  That insurance guarantees that even if you live to be 110, you can never owe more than the value of your home and never be forced to leave.

1. My heirs won’t inherit anything.

   FALSE     Your estate will owe the balance on the reverse mortgage.  The balance is however much you have spent plus any interest accrued.  For example, let’s say you got a reverse mortgage and owed $50,000 after 5 years.  Then you decide to sell the house for $250,000.  The lender will get $50,000 and you will get $200,000.

1. There are big out of pocket expenses.

FALSE     Depending on your equity all of the costs, whether closing costs or interest, are financed.  That means there is a great change there will not be any out of pocket expenses at any point of the reverse mortgage.

1. Social Security and Medicare will be affected.

FALSE     Money from a reverse mortgage is not considered income because it is a loan.  For this reason, a reverse mortgage does not lower Social Security or Medicare benefits.

1. I would have to pay taxes on the reverse mortgage.

   FALSE     You already paid taxes on the money when you were putting the equity into your home.  When you take it out again, it is not taxable. 

1. A reverse mortgage is similar to a home equity loan.

   FALSE     First, a home equity loan may have many requirements such as high income, low debt, and good credit.  A reverse mortgage does not have any of those requirements, you just have to be at least 62 years old and have enough equity in your house.

Second, you can “outlive” a home equity loan and end up being foreclosed on by the bank.  This can never happen with a reverse mortgage. Third, a reverse mortgage usually has significantly lower interest rates.  And fourth, with a reverse mortgage, you have no monthly payment due.