The Experts
Excelling in Service
Excelling in Service
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1-877-590-9648
A Division of Greenleaf Financial, LLC MO 173899
Myths and Truths
about Reverse Mortgages
about Reverse Mortgages
The following will help clarify if what you heard was a myth or the truth about reverse mortgages.
Myth: Borrower gives up ownership.
Truth: A Reverse Mortgage is like other mortgages where a lien is placed against the property but with the borrower maintaining ownership and the title remaining in their name. As with conventional mortgages, a Reverse Mortgage is a method of using one's home as collateral to borrow money.
Myth: Borrower can lose their home because of a Reverse Mortgage.
Truth: Since payments aren't required, the risk of losing one's home for not making mortgage payments is removed. Though if one does not maintain insurance, keep taxes current, maintain the property, or adhere to the terms of the loan the Reverse Mortgage can be required to be paid.
Myth: Home has to be completely paid off or have a low mortgage balance to obtain a Reverse Mortgage.
Truth: Reverse Mortgage proceeds must equal enough funds to pay any existing debt tied to the home. If not enough is available, borrower must come up with the difference and then the Reverse Mortgage can still be done.
Myth: At the end of a certain period of time the borrower must move out of their home. The Reverse Mortgage improves cash flow because one doesn't have to make mortgage payments. If one is unable to handle monthly loan payments of their mortgage or credit card payments, a Reverse Mortgage may be the solution. Or maybe one chooses not to make monthly payments any more. A Reverse Mortgage may be the solution for this situation also. Once the Reverse Mortgage pays off one's current lien(s) or mortgage(s), there are no more monthly payments.
Truth: Borrower can stay in the home as long as it is their primary residence. The loan does not need to be repaid until they choose to move, sell, die, or on their 150th birthday.
Truth: Again, borrower can stay in the home as long as it is their primary residence, whether funds are available or not. The loan does not need to be repaid until they choose to move, sell, die, or on their 150th birthday.
Myth: If monthly payment plan is chosen, at a certain age the borrower won't receive any more monthly payments.Truth: If the tenure payment plan is chosen, as long as the home is the borrower's primary residence, they continue to receive monthly payments. If a term monthly payment plan (available with the HECM only) is chosen, when the term has ended, further payments won't be received although they may stay in the home if it is their primary residence.
Myth: With a Reverse Mortgage children can't keep the home.
Truth: The borrower may leave the home to whomever they choose. If children want to keep the home, they need to pay off the loan balance. Children have several options for paying off the loan, including refinancing the debt, using liquid assets, or selling home. After the loan is repaid, the home or the remaining equity would go to the heirs.
Myth: When the loan is repaid the lender will take ALL the remaining equity or the home.Truth: Any remaining equity belongs to the borrower or their heirs after the loan balance is repaid. The amount of the loan balance to be repaid includes the financed closing costs, all cash advanced to the borrower over the length of the loan, servicing fees, and the accrued interest.
Myth: When the loan is repaid the lender will own the home.
Truth: As with a conventional loan, the lender does not own the home. The loan balance is to be repaid then any remaining equity belongs to the borrower or their heirs.
Myth: Senior needs to be cash poor and house rich before considering a Reverse Mortgage.Truth: Borrower does not have to be cash poor to do a Reverse Mortgage. People often do the Reverse Mortgage, as with a conventional mortgage, to access the equity in their home now. They are done for a variety of reasons from buying a car, home repairs, supplementing income or just having "more elbow room."
Myth: The interest rate is higher with a Reverse Mortgage than with a conventional mortgage.
Truth: The interest rate is usually lower than with a conventional mortgage. The initial interest rate on the HECM monthly adjustable rate program (the most common Reverse Mortgage program) is based on the LIBOR (London Inter-Bank Offertory Rate) or the one-year Treasury plus a margin. Over the last 15 years the LIBOR has average 5.04% interest.
Myth: Borrower could outlive the Reverse Mortgage.Truth: Borrower cannot outlive a Reverse Mortgage because the loan is not required to be repaid until the home is no longer their primary residence or on their 150th birthday.
Myth: If some equity is not reserved, borrower could be left with little or no assets after paying off the loan.woman relaxing because she did a reverse mortgage.
Truth: Borrower may choose to use the assets now to their advantage rather than later. Borrower could still have equity if home values increase higher than loan balances.
Myth: Closing costs are high.
Truth: The closing costs are the same as a forward mortgage plus the FHA Mortgage Insurance Premium if one is doing a HECM. The costs are regulated by HUD. Being the closing costs are taken out up front, this gives the perception of being high. Click here for a description of closing costs. Click here to view a comparison of closing costs.
To clarify the myths from the truths call:
Reverse Mortgages SIDAC
The Experts Excelling In Service
651-762-9648
Toll Free: 1-877-590-9648
Reverse Mortgages SIDAC
The Experts Excelling In Service
651-762-9648
Toll Free: 1-877-590-9648
©2005-2011 Reverse Mortgages SIDAC 651-762-9648
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