Reverse mortgages are complicated products that can sometimes be confusing whether you are a senior or even a mortgage expert. Requirements can change, often to benefit the consumer, but may add to the complexity. Borrowers usually get only one reverse mortgage in their lifetime, so the loan is not familiar to the average consumer. To make matters worse, negative press about reverse mortgages still come up with a Google search. Thus, it’s not surprising that some people think reverse mortgages are a scam.
Jessica Guerin from HousingWire recently posed the question, “Would the U.S. government really endorse a scam for the last 30 years? Not likely.” 1 Reverse mortgages were established by the Reagan administration in 1989 to help seniors access their home equity to help them finance retirement and stay in their homes.1 To help you understand reverse mortgages better, here are some facts explaining the common misconceptions about the product.
When the reverse mortgage was first introduced, a few unscrupulous sales people took advantage of seniors and gave the product a bad name. In some cases, seniors were not properly informed of the loan’s terms or requirements. Protections have since been put into place to prevent these scenarios. Examples include a financial assessment to ensure you have enough money to pay ongoing costs, independent HUD counseling2, and a Life Expectancy Set Aside, or LESA. A LESA requires some borrowers to set aside a portion of the reverse mortgage proceeds to pay for their homeowners insurance and property tax.
The reverse mortgage was created specifically to allow seniors to live in their home for as long as they wish. You keep the title of your home. The lender or the government does not own your home. You will not be evicted or foreclosed on as long as you meet the obligations of the loan. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
In the past, a homeowner may have taken a reverse mortgage, but their spouse did not because the spouse was not of qualifying age. The spouse was taken off the title and was forced to vacate the property when the borrower passed away. Regulations have since been put into place to prevent this. Eligible non-borrowing spouses can remain on the title and retain ownership of the home.3
You can still leave your home to your children, or to anyone you choose. When the loan becomes due, you or your heirs have the option of paying off the balance of the loan and keeping the home.
This is not the case. You may remain in the home as long you meet the obligations of the loan. Should you decide to sell the home or move out, the loan would then become due and payable because your home is no longer your primary residence.
Government entitlement programs such as Social Security and Medicare are usually not affected by a reverse mortgage. However, programs such as Medicaid and Supplemental Security Income (SSI) may be affected.4 It’s best to consult with a qualified financial advisor or government agent to learn how a reverse mortgage could impact eligibility of some government benefits.
This is far from the truth. In fact, many borrowers obtain a reverse mortgage to eliminate their monthly mortgage payments.5 You can have a mortgage or other debt on your home’s title as long as you have enough equity in the property. The mortgage or debt must be paid off with the proceeds of the reverse mortgage.
With the life expectancy of seniors increasing, some people believe that the lender will evict them from their home if they outlive their expectancy. That is not true. The reverse mortgage was created specifically to allow seniors to live in their home as long as they wish. The homeowner will not be evicted or foreclosed on as long as he or she meets the obligations of the loan.
While not for everyone, a reverse mortgage can be a beneficial product to help seniors with their financial retirement plan. If you still have questions about a reverse mortgage, call 1-800-976-6211 to speak with a licensed loan officer who can help provide you with the facts you need. You can also receive a free, no-obligation loan assessment to see if a reverse mortgage could be the right financial solution for you or someone you know.
1HousingWire.com. WTH is a reverse mortgage? So many consumers think they’re a scam. Here’s the truth. (April 16, 2019) https://www.housingwire.com/articles/48812-wth-is-a-reverse-mortgage
2 The U.S. Department of Housing and Urban Development (HUD) provides a list of approved reverse mortgage counseling agencies for you to choose from. The purpose of this requirement is so you are aware of all of your options, and can evenly weigh the pros and cons of each.
3A spouse must meet the following requirements to be considered eligible: 1) Be the spouse of the reverse mortgage borrower at the time of loan closing and remain the spouse of the borrower for the duration of the borrower’s lifetime. 2) Be properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the loan documents. 3) Occupy, and continue to occupy, the property securing the reverse mortgage as the principal residence.
4ElderLawAnswers.com. Is a Reverse Mortgage Right for You? (March 2, 2017) https://www.elderlawanswers.com/is-a-reverse-mortgage-right-for-you-12252
5Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.