I’ve been specializing exclusively in reverse mortgages for over 14 years and it is easy for me to forget that a whole lot of people still don’t understand how they work. Most of the people that I talk to on a daily basis have heard and still believe at least one of the common myths about reverse mortgages.
I think it would be a good idea to address two of them here so you can use this as a reference when your neighbor, brother-in-law, or anyone else tries to tell you how they think they work.
The first myth is that you have to give up the title of your home to the lender. FALSE.
The reverse mortgage program works just like any other mortgage loan in that the lender has a lien against the home. The reason for this is so that if you don’t abide by the rules of the loan, the lender can foreclose. With a regular mortgage you know that if you don’t make the payments, the bank takes your home.
With a reverse mortgage, there are no payments that have to paid, but you do have to pay your property taxes and homeowners insurance as well as maintain the home. These requirements of the reverse mortgage are the same as if you owned the home free can clear of any mortgage.
You know that if you do not pay your property taxes, you will lose your home. The same is true if you didn’t pay your homeowners insurance and your home caught fire. You’d be out on the street.
In order to keep the reverse mortgage, you also have to live in the home as your primary residence, which is one of the reasons that you get the reverse mortgage in the first place.
In a nutshell, your home stays your home, even with a reverse mortgage. You have to take care of it and live in it. The bank does NOT take the title.
The second myth is that the bank takes your home when you die. FALSE.
This is probably the most common myth that exists today. I speak with real estate agents, financial advisors, bankers and even other mortgage people and most are still under the impression that the bank takes the home when the last homeowner passes away.
What actually happens is that the heirs still inherit the home, just like they would if you had any other kind of mortgage against the title.
If you have a regular mortgage on the home when you died, your heirs would inherit the home and have to keep making payments on it or the bank would foreclose. The way it works with a reverse mortgage is that the heirs inherit the home and they have six months to either sell the home or refinance it. If they cannot do either of these within this time frame, they can get up to two 90 day extensions (for a total amount of time of one year).
When they sell the home, the money from the purchase will pay off the reverse mortgage and whatever is left will go to them as an inheritance.
There is a chance, as with any mortgage, that there is no equity left. In that case, your heirs can give the home to the bank and walk away with no responsibility or recourse to them or the rest of your estate.
If you have a regular mortgage and owe more on it than the home is worth, the bank can come after the rest of your estate to get their money.
Unfortunately, this format only allows for limited space so I am only able to address two of the myths in this article, but stay tuned because there are plenty others and people will tell you all kinds of myths to try to thwart your interest in this program. I am sure that most people are good hearted and only want to help, but they are just wrong. Now you know the facts about two of the most common myths of reverse mortgages.