Reverse Mortgage Myths vs Facts How to Strech Your Retirement Funds

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Reverse Mortgage Myths vs Facts
Wed 04/23/08 06:01:11 pm
How to Strech Your Retirement Funds

I would be selling my house to the bank
My heirs won't inherit anything
I might "outlive" the loan
I could get forced out of my home
Social Security and Medicare will be affected
I would have to pay taxes on the reverse mortgage
There are big out-of-pocket expenses
A reverse mortgage is similar to a home equity loan

1. I would be selling my house to the bank

FALSE You keep the title to your house. The lender will add a lien on the property but you will still have complete control over it.

2. My heirs won't inherit anything

FALSE Your estate only owes the balance on the reverse mortgage. The balance is however much you've spent and interest.
Let's say you got a reverse mortgage and owed $50,000 after 5 years. Then you decided to sell the house for $250,000. The lender gets $50,000 and you get $200,000.

Back to Questions

3. I might "outlive" the loan

FALSE FHA/HUD reverse mortgages are designed specifically so that you can't outlive the loan. When you get the reverse mortgage, the lender will charge you 2% to purchase mandatory FHA mortgage insurance. That insurance guarantees that even if you live to be 100, you can never owe more than the value of your home and you can never be forced to leave.

Back to Questions

4. I could get forced out of my home

FALSE FHA/HUD reverse mortgages specifically state that you can not be forced out of your home.

Back to Questions

5. Social Security and Medicare will be affected

FALSE Money from a reverse mortgage is not considered income because it is a loan. For this reason, a reverse mortgage does not lower Social Security and Medicare benefits.

Back to Questions

6. I would have to pay taxes on the reverse mortgage

FALSE You already paid taxes on the money when you were putting the equity into your home. When you take it out again, it is not taxable.

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7. There are big out-of-pocket expenses

FALSE All of the costs, whether closing costs or interest, are financed. That means there are never out-of-pocket expenses at any point in the reverse mortgage.

Back to Questions

8. A reverse mortgage is similar to a home equity loan

FALSE

First, home equity loans may have many requirements such as high income, low debt, and good credit that a reverse mortgage does not.

Second, you can "outlive" a home equity loan and end up being foreclosed on by the bank. This can never happen with a reverse mortgage.

Third, a reverse mortgage usually has significantly lower interest rates.

No Obligation.
No Initial Credit Check
Expected time to complete 3 minutes

If you are age 62 or older and have built up equity in your manufactured home, a reverse mortgage will allow you to borrow against the equity in your home, even if it is located on leased land!

Instead of continuing to make mortgage payments, you get paid back the money you already have in it - that's the "reverse" part. You never have to repay the loan as long as you live in your home and you can choose to receive the cash disbursements as monthly income, a line of credit, or a lump sum.

Also, because the FHA/HUD program is backed by the US government, you will never owe more than the value of your home - even if you receive monthly payments for the next 20 years.

Finally, you keep title to your property - it stays part of your estate.

What can a reverse mortgage be used for?

After you receive the tax-free funds from your reverse mortgage, it is up to you to use them however you please. Some retirees choose a reverse mortgage to have peace of mind and others want to improve their qualityof life. Common uses for reverse mortgages (AARP and HUD survey)

Gifts Trvael,
Something special
Daily expenses
Pay property taxes
Home repair & improvement
Reduce burden on children
Repay existing mortgages
Healthcare costs

Comparing the Benefits

Continue to live in and own your home
Receive tax-free income from the cash disbursements•Choose from monthly income, a line of credit, or a lump sum
Repay the loan at any time with no penalty
Owe nothing as long as you occupy your home
No personal liability for repayment of the loan since it is secured solely by your home (you and your heirs are not personally liable)
Pass the remaining equity in your home to your heirs Costs
There are no income, employment, or credit requirements.

Cash disbursement options

You can choose to receive any combination of these options:

Lump sum of Cash is available immediately
Term of Equal monthly payments for a fixed number of months
Tenure of Equal monthly payments for as long as at least one homeowner lives in the property
Line of credit - A credit line that you can draw upon whenever you wish

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