How a Reverse Mortgage Loan Works
Making the most of your retirement. You’ve worked hard all your life. Now it’s time for all the love and money you’ve invested into your home to start paying you back. Many homeowners are taking advantage of a reverse mortgage to supplement their retirement. It’s not only flexible; it also offers security and predictability in today’s challenging economy. A reverse mortgage loan may be the ideal solution for you. What is a reverse mortgage? A reverse mortgage is a loan that allows homeowners age 62 and older to access a portion of their home equity and convert it into tax-free retirement funds.
The federal government has put in place several safeguards in the reverse mortgage loan program to protect and shield homeowners from predatory lending practices. Chief among them is the mandate that a third-party counseling session must occur with an independent HUD-approved counselor before an application can be processed
Established by Congress over twenty years ago, reverse mortgage loans are still a fairly new family of financial products. Though most seniors and retirees are familiar with reverse mortgages, a great many myths still exist that cloud the important and relevant facts. The list below will help you dispel the common misconceptions about reverse mortgage loans.
Common Reverse Mortgage Misconceptions:
When you obtain a reverse mortgage loan; the bank owns your home.
False: You will maintain the title as long as you live in your home, keep it maintained according to FHA requirements, and pay your property taxes and homeowners insurance.
Reverse mortgage loans are very risky.
False: Reverse mortgage loans are widely regarded as a safe financial product. The federal government has placed strict regulations and safeguards on reverse mortgage loans to protect seniors. Additionally, the National Reverse Mortgage Lenders Association (NRMLA) was created to develop and promote best practices in the Reverse Mortgage industry. Pacific Home Reverse Morgage, is a member of NRMLA and strictly adheres to its Code of Ethics and Professional Responsibility.
Your home must be paid off to qualify for a reverse mortgage loan.
False: As long as there is sufficient equity in your home, you may be eligible for a reverse mortgage loan, even if you still owe money on your existing mortgage. However, the existing mortgage balance must be paid off at closing. You may be able to use the funds from your reverse mortgage loan, or another source to pay off that balance.
You could end up owing more than your home is worth when it is sold.
False: You or your heirs will not be required to repay more than the value of your home at the time of sale to repay the loan even if your loan balance exceeds the sales proceeds.
Reverse mortgage loan proceeds are taxable and will affect your Social Security and Medicare.
False: Reverse mortgage loan proceeds are not taxable because the IRS does not consider them as income. In addition, a reverse mortgage loan will generally not affect regular Social Security payments or Medicare benefits. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. We recommend you consult with a qualified professional to determine the specific rules.
The bank takes your home upon your death leaving nothing for your heirs.
False: A reverse mortgage loan functions like any other mortgage with a lien placed on the property. When the loan becomes due it must be paid. Generally, you can pay off the loan balance two ways: You or your heirs can sell the home and use the proceeds or use other sources to repay the loan.
There are restrictions on how you can use the money.
False: You can use the net proceeds of your reverse mortgage loan funds however you see fit. However, if your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the reverse mortgage loan proceeds or prior to obtaining a reverse mortgage loan. Whatever your circumstance, we recommend that you speak to a financial advisor.