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Benefits of a Reverse Mortgage
Myths
Top 8 Myths about Reverse Mortgages
1. I would be selling my house to the bank
FALSE
You keep the title to your house. The lender will add a lien on the property but you will still have complete control over it.
2. My heirs won't inherit anything
FALSE
Your estate only owes the balance on the Reverse Mortgage. The balance is however much you've spent plus interest.
For example, you received a Reverse Mortgage and owed $70,000 after 5 years. Then you decided to sell the house for $250,000. The lender gets $70,000 and you get $180,000.
3. I might "outlive" the loan
FALSE
FHA/HUD Reverse Mortgages are designed specifically so that you can't outlive the loan. When you get the Reverse Mortgage, the lender will charge you 2% to purchase mandatory FHA mortgage insurance. That insurance guarantees that even if you live to be 100, you can never owe more than the value of your home and you can never be forced to leave.
4. I could get forced out of my home
FALSE
FHA/HUD Reverse Mortgages specifically state that you can not be forced out of your home.
5. 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 and Medicare benefits.
6. 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.
7. There are big out-of-pocket expenses
FALSE
All of the costs, whether closing costs or interest, are financed. That means there are never out-of-pocket expenses at any point in the Reverse Mortgage.
8. A Reverse Mortgage is similar to a home equity loan
FALSE
First, home equity loans may have many requirements such as high income, low debt, and good credit that a Reverse Mortgage does not. 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.
