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Navigating the Misconceptions About a Reverse Mortgage

Today’s reverse mortgage loans aren’t the same product as yesteryear’s reverse mortgages. But many would-be borrowers don’t realize the new guidelines and protections in place that make modern reverse mortgages safer for the consumer. One of the best ways that lenders can combat borrowers’ fears is by acknowledging the stigma that reverse mortgage loans once carried, and then educate them on the benefits and advantages of the new programs and guidelines. Here are some common misconceptions that still haunt borrowers.

Misconception 1: “I no longer own my home.”

The fact is, a reverse mortgage is a collateral-based, non-recourse loan, which means the borrower or heirs retain the equity. If there is no equity in the house, or the loan balance is larger than what the home is worth, the borrower or his or her heirs are never responsible for the difference; the homeowner can never owe more than the value of the home or the loan balance, whichever is less. While the bank has an interest in the property, they’re not going to take your property from you or your heirs. The property is still titled to you, and you still retain ownership.

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Misconception 2: “The bank will take my home when I leave.”

It’s a very scary proposition to think that someone is going to take your house. The fact is, when the last living borrower leaves the house, whether he or she moves from the property or passes away, there are several options to pay back the reverse mortgage.

  • Your estate can keep the home and pay back the loan.can keep the home and pay back the loan.
  • Your estate can sell the home and pay off the loan.
  • Your estate can give permission for the bank to the sell the home. Your children or heirs will never pay more than the house is worth. For example, if you owe $100,000, and your house only sells for $75,000, that gap is paid by mortgage insurance, not your or your heirs. 
Misconception 3: “Reverse mortgages are only for low-income homeowners.”

Reverse mortgages of the past were mostly sought by low-income homeowners, who were struggling to make financial ends meet, as a last resort to stay in their homes while paying for medicine, healthcare services, food, and utilities. Today, a fast growing sector of borrowers are using reverse mortgages as a retirement planning tool to help put off tapping into their investment portfolios or social security so early on in their golden years.

Don’t let the reputation of past reverse mortgage loan programs turn you away. Talk through your concerns with a Certified Mortgage Loan Professional who can update you on the new guidelines, safer consumer practices, and how the programs of today can work for you.

Learn more about how people are using home equity conversion mortgages for purchasing homes:

Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.