3 Common Myths About Reverse Mortgages
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I’m here today with Terry Whitesell from Fairway Mortgage and a special guest, Rudy King. He’s the reverse mortgage planner for Fairway. We’ve been getting a lot of questions about reverse mortgages lately, so Rudy is here to shed some light on the topic.
There are a lot of misconceptions about reverse mortgages, which is the most misunderstood and underutilized loan program. There are three primary misunderstandings when it comes to reverse mortgages.
The first is that a lot of people think this is where you surrender title to your property and the bank gets your house. That is not the case at all. You never give up title to your house with a reverse mortgage. Additionally, you’re never required to make the mortgage payment*, and neither you nor your heirs will ever owe more than what the house is worth.
*Borrowers must pay taxes, insurance & maintain the property
"With a reverse mortgage, you exchange equity for cash to pay your mortgage."
Secondly, we often hear that reverse mortgages are too expensive to be justified. That’s just a myth. These are FHA-insured loans, and as a result, there is an FHA mortgage insurance premium that comes as a part of the closing cost. This does make them more expensive than a traditional mortgage.
We also hear that it will cause your heirs to lose their inheritance because you can no longer pass along the value of the house. This is untrue, and as a matter of fact, when the home is sold, any equity is given to the owner or their heirs just like if they were selling the house with a traditional mortgage.
As far as who might benefit the most from a reverse mortgage, they are specifically designed for property owners of the age 62 or older. Even a lot of Realtors don’t understand that you can purchase a home with a reverse mortgage. For buyers age 62 or older, they don’t have to put all of their cash into paying for the house. For example, they can pay 50% down, finance the balance through a reverse mortgage, and have that home to live in for the rest of their lives without a mortgage payment.
They can also increase their purchasing power and actually get more house. A common situation we see here in the Carolinas is that grandparents will sell a house in the upper Midwest and come with $200,000 cash from that sale to buy a home here, only to find that the market is pretty limited in that range. This is a way they could potentially look into a higher price range and still live in that house without a mortgage payment.
With a reverse mortgage, you exchange equity for cash to pay your mortgage. It’s the most flexible, efficient way of doing that for older homeowners.
If you’d like more information, you can reach out to me by email and I can put you in touch with Rudy. For any other questions about real estate, give us a call or send an email. We’d be happy to help.