Debunking the Myths of Reverse Mortgage
Over the years many myths and misconceptions have grown around Reverse Mortgage Loans. Let’s debunk those myths right here, right now.
MYTH: My heirs will be stuck with my reverse mortgage when I pass away.
NOT TRUE, a reverse mortgage is a non recourse loan, meaning that after you pass away and when your home is sold, the proceeds from the sale of your home are used to payoff the reverse mortgage. If the reverse mortgage balance is greater than the sale price, it’s the bank’s loss. The bank is protected from this scenario with mortgage insurance.
MYTH: The bank will own my home and can kick me out when they want.
FALSE, YOU RETAIN THE TITLE to your home and have all the rights and responsibilities of a homeowner. The reverse mortgage is an FHA loan and thus the bank must abide by FHA regulations meaning they cannot kick you out when they want or if they become insolvent. However, you must maintain residency and eligibility requirements as your end of the bargain.
MYTH: Owners with Reverse Mortgages are at higher risk of foreclosure.
THIS CAN BE TRUE. Historically, Reverse Mortgages have defaulted at higher rates than traditional mortgage loans. This is largely related to non-payment of property tax and insurance. These costs are due regardless of the mortgage type, and even if you don’t have a mortgage! Mitigate this risk by setting up a Life Expectancy Set Aside (LESA) ahead of time to cover these expenses.
As a part of a complete retirement planning picture, a reverse mortgage can be a great option for seniors that may not have substantial savings to carry them through retirement or as a financial backstop to prevent having to be reliant on family or social services late in life. For most seniors, your home is an important asset that you’ve worked hard for. A reverse mortgage can help create a stable, simplified financial picture for your retirement years.
To explore whether a reverse mortgage is a good option for you, let’s talk about it. Make an appointment to go over your options and your specific scenario with your SnapFi Mortgage Advisor. We’re here to help you explore your options!