Seniors and the Danger of Prescription Drug
Addiction
Stan's
Sacramento:
The Journalistic Drawbacks of Computers
Senior Health: Calcium Is Effective for Preventing Osteoporosis
Ted Ruhig: What Is Happening to the Politics of Our Country?
Senior Moments: Sanitized Hands Have Become an International Craze
Klockwork: An Intimate Profile of King Joseph Klock
Reflections on Aging: PAWS Offers Sanctuary to Retiring and Abused Animals
Dutch Treat: Stressful, Secret Party Planning Leads to Golden Celebration
Top 10 Reverse Mortgage Myths Dispelled
Spectrum
Staff
As
reverse mortgages have continued to grow in popularity, so have a range of
myths and misinformation about these unique loans.
Fortunately, there’s more and better information available today than just
a few years ago. However, as many seniors, the adult children of seniors and
advisors are exploring reverse mortgages, some old myths still linger and new
myths have emerged. Listed below are some of the most common misconceptions along
with a few facts:
(1). The bank takes the house OR the borrower can lose the house.
With a reverse mortgage, the borrower retains title to the home throughout the
life of the reverse mortgage. The borrower cannot, as a result of the reverse
mortgage, be forced out of his or her home as long as property charges such as
taxes and insurance are paid and the home is maintained in reasonable living
condition.
Once the last borrower permanently moves out of the home, the loan must be repaid.
Most properties secured by reverse mortgages still have equity when a maturity
event occurs and therefore the borrower or his/her heirs can choose to sell the
home to repay the loan and preserve this equity for the benefit of the borrower
or his/her estate.
(2). The home must be paid off or be debt-free to qualify for a reverse mortgage.
Reverse mortgages convert home equity into cash. As long as there is sufficient
equity in the property, the homeowner may be eligible for a reverse mortgage.
In fact, many seniors use a reverse mortgage to pay off an existing mortgage
in order to eliminate a required monthly mortgage payment.
(3). When a reverse mortgage becomes due, the bank sells the home.
The borrower is in control of the home and retains the title, not the bank or
lender. So while it’s common for the borrower or the heirs to sell the
home to repay the loan, it’s a decision only the borrower or his heirs
can make. The borrower or the heirs might also refinance the home in order to
repay the loan.
(4). It’s cheaper to move to a smaller house.
While this strategy might be right for different reasons, seniors need to analyze
their costs carefully before making this assumption. The process of selling a
home and moving into a new home can be expensive.
The typical real estate commission of 6 percent on a $300,000 home would be $18,000.
Add on moving costs and the undertaking to find a new home, and the decision
is not quite as simple.
(5). Children want the home or don’t feel comfortable with a reverse mortgage.
Seniors are encouraged to talk with their children about reverse mortgages. Many
baby boomers are faced with trying to plan for their retirement and pay for their
children’s education. Often the children of many seniors are happy that
their parents have a financial solution available to help them live more independently
and financially secure.
(6). The borrower could end up owing more than the home is worth.
Two of the greatest safeguards for reverse mortgages are that they are structured
so that the borrower or the estate can never owe more than the value of the home
upon repayment. In addition, the HECM products are insured by the Federal Housing
Administration, an arm of the U.S. Department of Housing and Urban Development
(HUD).
(7). Reverse mortgage proceeds will impact Social Security and Medicare benefits.
A reverse mortgage will usually not affect regular Social Security payments or
Medicare benefits. Depending upon the borrower’s situation, a reverse mortgage
may affect benefits one receives, if any, from the Federal Supplemental Security
Income (SSI) program, or state-administered programs like Medicaid. It is recommended
that the borrower speak with his or her financial advisor and appropriate governmental
agencies.
(8). There are restrictions on how the money is used.
Actually there are no restrictions. The cash proceeds from the reverse mortgage
can be used for any purpose. It is recommended that the borrower speak to a financial
advisor. Many seniors have used reverse mortgages to travel, pay off debts, help
their kids, make a luxury purchase or just live more comfortably.
(9). Once the proceeds are received, taxes will need to be paid.
The cash proceeds from a reverse mortgage are tax free because it is already
your money. It is recommended that the borrower consult with a financial advisor.
(10). Reverse mortgages are only for seniors in need, or for the “house
rich, cash poor.”
The reverse mortgage is an excellent financial planning tool that has been used
by homeowners from all walks of life to enhance their retirement years. Increasingly,
lenders are seeing interest and growth among jumbo reverse mortgages geared toward
borrowers whose homes exceed the FHA lending limits, which peak below $400,000.
Many seniors with multi-million dollar homes are using reverse mortgages as part
of their estate or legacy planning in conjunction with advice from financial
advisors.
This page and its contents ©2007
Metropolitan News Company, Inc.
