Actually… the Truth about Reverse Mortgages
1. A Reverse Mortgage will not sell your home to the bank.
Lenders are not in the business of owning homes — they want to make loans and earn interest. Homeowners keep title to their home. Just like any other Mortgage Loan, the Lender adds a lien on title, so that the loan is paid from the proceeds of the sale.
2. Your Children will inherit the home.
The estate inherits the home as usual, and there is a lien on title. The lien is whatever proceeds were received from the Reverse Mortgage plus accrued interest. For example, someone takes out a Reverse Mortgage and after 10 years owes $150,000. The homeowner relocates or passes away and the estate sells the house for $350,000. The lender gets $150,000 and the estate inherits $200,000.
Additionally, a Reverse Mortgage is a “non-recourse” loan which means that the homeowner (or their estate) will never owe more than the value of the property. Non-recourse simply means that the borrower (or estate) does not pay any outstanding loan balance to the lender; Instead, the Lender is responsible for any difference between the home’s market price and the total loan amount.
3. The Homeowner will not be forced out of their home.
The Reverse Mortgage was created specifically to allow seniors to live in their home for the rest of their lives – Most seniors choose to “Age in Place.” Because the homeowner typically receives payments from a Reverse Mortgage instead of making payments to a lender, the homeowner can never be evicted or foreclosed on for non-payment. However, it is the homeowner’s responsibility to maintain the property in safe conditions, keep property insurance current, and pay the property taxes on time.
4. The Homeowner will not “out live” the loan.
The Reverse Mortgage becomes due 6 months after the last homeowner has moved out of the property for 12 consecutive months, or has passed away.
5. The Homeowner’s Social Security and Medi-Care are safe.
Government programs such as Social Security and Medicare are not affected by a Reverse Mortgage. However, needs-based programs such as Medicaid can be affected. To remain eligible for Medicaid, homeowners can manage their monthly stipend amount to remain below Medicaid limits. You should consult with a qualified financial advisor or case worker to learn how a Reverse Mortgage could impact eligibility of government benefits.
6. The Homeowner will not pay Income Taxes on their proceeds.
The proceeds from a Reverse Mortgage are not considered income and therefore are not taxable. Furthermore, the interest on a Reverse Mortgage can be tax deductible at the time of repayment. Consult a tax adviser for more information.
7. The Homeowners out-of-pocket costs are minimal.
Typically, the out-of-pocket expenses include the cost of the counseling, which can be completed via telephone or video ($150-350). Some lenders can pay the appraisal fee and deduct the cost from the borrower’s proceeds.
8. The Homeowner making their mortgage payments on time now gets paid back.
Seniors making regular mortgage payments can recoup those funds with a Reverse Mortgage. By paying off a traditional mortgage, and providing additional cash, homeowners can now spend those funds on life’s essentials, making inspirations come true, or providing liquidity for their portfolio. A Reverse Mortgage actually reverses the flow of money back into your pocket, and into your life!