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 dirk_gray@frost­mort­

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