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Be Really Smart About Reverse Mortgages

Published March 23, 2017 by Brady Cobin Law Group, PLLC

Reverse mortgages are not as complex as they used to be, but you still have to be careful and do your homework.

Reverse mortgages are very different from regular mortgages, but they can offer some solutions to senior homeowners, according to an article in TC Palm, “Myths vs. realities surrounding reverse mortgages.” Talk with your estate planning attorney, before signing up for a reverse mortgage just to be sure. Here are some common misunderstandings and mistakes about reverse mortgages:

  • Myth # 1: My lender will own our home. No, you will keep the title and ownership of the home during the life of the loan. You can also sell your home at any time. The loan won’t become due  as long as you keep satisfying the loan obligations, including living in the home, maintaining the home according to FHA requirements and paying property taxes and homeowner’s insurance.
  • Myth # 2: The home has to be free and clear of existing mortgages. This is also not true. Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.
  • Myth # 3: You must pay taxes on the loan proceeds when they are received. Reverse mortgage loan proceeds are tax-free.  They are really not considered income. However, there may be an impact on government benefits eligibility.
  • Myth # 4: The borrower is limited on how to use the loan proceeds. When any existing mortgage or lien has been paid off, the loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for anything, such as to supplementing household retirement income, deferring receiving Social Security benefits, paying off other debt, paying medical expenses, remodeling the home or helping family members.
  • Myth # 5: Reverse mortgages are for poor people. This is not true. The notion that reverse mortgages help only the poor borrower is changing. More affluent senior borrowers with multimillion dollar homes and healthy retirement assets now use reverse mortgage loans as part of their financial and estate planning.
  • Myth # 6: My heirs will be responsible for paying off the entire loan. If your children want to keep the home in the family, they will have to pay 95% of the appraised value to keep the home. This is one of the details to discuss with an experienced estate planning attorney.

Reference: TC Palm (February 21, 2017) “Myths vs. realities surrounding reverse mortgages.”

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