Every now and then, someone tells me their afraid to get a reverse mortgage. I understand it's a big decision, but I think the fear comes from the news media and the 'financial experts' that come on and instill fear in their viewers, listeners and readers. Sometimes they spout off statements that are just plain wrong, such as the lender owns the house. Other times they state the facts but say them in a negative way with all sorts of warnings. Obviously, you need to do your due diligence and learn everything you can about reverse mortgages to determine if it's right for you or a family member. Many of my clients come to me well educated (they know more than those 'financial experts').
Don't let your fear keep you from the facts to see if this is something that could help you maintain or enhance your lifestyle throughout retirement.So let's look at the facts:
- There are no monthly payments required which really makes sense in retirement. Why take money from savings (pay taxes on it) just to make mortgage payments? Use your equity just like other assets and disburse it for retirement.
- The main reverse mortgage program is the government insured HECM or Home Equity Conversion Mortgage. This is not a fly by night program! You are protected through FHA mortgage insurance. You will receive counseling from a HUD approved reverse mortgage counselor. All aspects of the program are fully disclosed. There is no 'fine print'. There's lots of print, believe me and it is all clearly stated.
- You can count on funds to be available throughout the loan term which is as long as you live in your home through the monthly tenure payment option. Or you can set up a line of credit that increases over time and it will not be stopped or reduced no matter what happens to your home value.
- You remain the owner of your home and you can sell at any time, pay off the reverse mortgage loan balance and take the rest of your equity with you.
- If your loan balance becomes higher than your home's value, you or your estate are not responsible for the difference. The home alone stands for the debt. If there is equity remaining, you or your heirs keep it.
- Don't worry about having to pay income taxes on the funds received from the reverse mortgage, it's a loan, not income. Therefore it doesn't affect social security, medicare or even public benefits and low-income discounts you may receive.
- And when you hear something like: "you could loose your home if you get a reverse mortgage", understand they meant if you don't pay your property taxes, homeowners insurance or keep up the maintenance, the lender has a right to foreclose. But it's your home! These are responsibilities you know you must take to maintain your home. Even if you didn't have a mortgage at all, you could loose your home if you don't pay your property taxes.
So understand what is behind all the fear that is generated around reverse mortgages so you can open yourself to a program that may be the answer to a fulfilling retirement.
If you have more questions than answers go to Q & A