Common Myths About Reverse Mortgages

MYTH: A Reverse Mortgage sells the home to the bank

TRUTH: The homeowner keeps the title to the home in their name. The Lender places a lien on the title which guarantees that the mortgage will eventually get paid in full.

MYTH: Heirs will not inherit the home

TRUTH: The estate inherits the home as usual, but there will be a lien on the title. The lien is whatever proceeds were received from the reverse mortgage plus accrued interest.

In order to retain the home, the heirs must either repay the reverse mortgage or 95% of the appraised market value of the home. No assets other than the home must be used to repay the debt.

MYTH: The homeowner could get forced out of the home

TRUTH: The HECM reverse mortgage was created specifically to allow seniors to live in their homes for the rest of their lives. Because the homeowner typically receives payments from a reverse mortgage instead of making payments to a lender, the homeowner can never be evicted or foreclosed on for non-payment. The homeowner must live in the home as their primary residence, pay property taxes, homeowner’s insurance, HOA Association dues (if applicable) and maintain the home according to FHA requirements, otherwise, the loan becomes due and payable.

MYTH: Someone can outlive a reverse mortgage

TRUTH: The reverse mortgage becomes due when all homeowners have moved out of the property for 12 consecutive months or passed away. The homeowner must live in the home as their primary residence, pay property taxes, homeowner’s insurance, HOA Association dues (if applicable) and maintain the home according to FHA requirements, otherwise, the loan becomes due and payable.

MYTH: Social Security and Medicare will be affected

TRUTH: Government entitlement programs* such as Social Security and Medicare are not affected by a reverse mortgage. However, need-based programs such as Medicaid can be affected. To remain eligible for Medicaid, the homeowner must manage how much comes from the reverse mortgage in one month to ensure Medicaid limits are not exceeded.

* Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

MYTH: The homeowner pays taxes on a reverse mortgage

TRUTH: The proceeds* from a reverse mortgage are not considered income and are not taxable. Furthermore, the interest on a reverse mortgage can be tax-deductible when it is repaid.

MYTH: The homeowner pays taxes on a reverse mortgage

TRUTH: The proceeds* from a reverse mortgage are not considered income and are not taxable. Furthermore, the interest on a reverse mortgage can be tax-deductible when it is repaid.

MYTH: The homeowner pays taxes on a reverse mortgage

TRUTH: The proceeds* from a reverse mortgage are not considered income and are not taxable. Furthermore, the interest on a reverse mortgage can be tax-deductible when it is repaid.

The Bottom Line: A Reverse Mortgage Can Be A Great Option For Some

When considering a reverse mortgage, it’s essential to understand the facts. Contact us, and we can walk you through the options to see if a HECM or Reverse Mortgage is right for you.