Addressing the myths
You don’t have to spend much time in the world of reverse mortgages before you begin hearing themyths. A “myth” is a widely held but false idea, and is often found in the early history of a people. My mentor called them “senior citizen ghost stories” that are shared around the campfire... or over a heated game of bridge.
Unfortunately, it’s limited knowledge, experience, and the well-intentioned that provide the backdrop for mis-information. And, sadly, the history of the product created a culture of mis-trust — thankfully, today the reverse mortgage is one our finest financial resources for our senior population. So, let’s review a collection of these common myths.
Myth #1: You no longer own your home; the bank or government does. Fact: This by far is the biggest misperception. You are still on title, and you still own your home. Should you decide to move, you can sell the home. Otherwise, it will likely pass to your heirs as you direct in your will or trust.
Myth #2: The home must be “free and clear” to qualify. Fact: No, your home does not have to be free of liens or mortgages. More than half of reverse mortgage transactions are done with the intent to pay off an existing mortgage lien or other debts, like credit-card balances or automobile loans. Many senior homeowners can benefit from no longer having high monthly debt obligations.
Myth #3: A good financial planner would advise against completing a reverse mortgage. Fact: In actuality, the opposite is true. They see it as a risk-management tool to use in conjunction with an investment strategy in order to help meet a retirement goal.
Myth #4: The closing costs of a reverse mortgage are very high. Fact: The U.S. government has made many positive changes to theHECM(Home Equity Conversation Mortgage) reverse mortgage program. Other than the counseling and appraisal costs, the other costs are typically rolled into the loan. Due to the non-recourse clause, the HECM requires mortgage insurance throughout the life of the loan.
Myth #5: You no longer need to pay property taxes. Fact: As is true with all homeowners with a mortgage, you MUST continue to pay for property taxes, homeowner’s insurance, and maintenance.
Myth #6: If your home is in a trust, you must remove it from the trust to qualify. Fact: You do not need to remove the home from your revocable living trust in order to close on a reverse mortgage. If your loan officer is requiring this, look for another loan officer.
Myth #7: Social Security and Medicare benefits will be affected by a reverse mortgage. Fact: The money produced by a reverse mortgage does NOT affect Social Security orMedicare. However, if you are on Medicaid, speak to your Medicaid counselor to learn if your benefit will be affected.
Dirk Gray is a reverse-mortgage specialist with Frost Mortgage, and an accredited instructor for the New Mexico Real Estate Commission. He can be reached at 505930-1953 or firstname.lastname@example.org