Myths and Facts

Listed below are the common myths, followed by the facts of reverse mortgages that will bring clarity and assist you in making the most informed decision.

Reverse Mortgage Myths and Facts

Myth: You immediately transfer ownership of your house.

Fact: You keep the title to your home as long as you follow the loan guidelines and requirements, which include: maintaining the property, paying all property charges such as property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable), and avoiding extended absences from the home of more than six months.¹ A lien is put on the property, as with any other mortgage, to insure future repayment of the debt.

Myth: Your children will not receive any of the house equity if you take out a reverse mortgage loan.

Fact: While the amount of equity in a reverse mortgage normally drops with time, this does not imply that there will be no equity left after the final borrower dies. There are various elements that influence how much equity is left, including house value, loan term, and optional monthly payments. There may be some equity left over for your offspring.

Myth: When you die, your offspring will be responsible for repaying the loan.

Fact: A reverse mortgage is a non-recourse loan, which means that the lender can only be repaid from the proceeds of the home's sale and not more than the home's value. That is, even if the home's value drops dramatically, the maximum payback amount can only be up to the home's value. While your heirs will not be responsible for loan repayment, they will be able to refinance the loan in order to purchase it for themselves.

Myth: A reverse mortgage necessitates monthly mortgage payments.

Fact: While mortgage payments are optional, they are not needed with a reverse mortgage. The borrower is still liable for property maintenance, property taxes, homeowners insurance, flood insurance, and (if applicable) homeowners association dues.¹

Myth: Before you may qualify for a reverse mortgage, you must have paid off your initial mortgage.

Fact: While any debt on your home's title must be paid off at closing, and you must have sufficient equity in the property, you do not have to own your home "free and clear" before applying for a reverse mortgage.

Myth: If you have a reverse mortgage, you are not permitted to sell your house.

Fact: You can sell your property if you like, but you must pay off the reverse mortgage at closing, just like any other mortgage debt. If you prefer to pay off your loan early or make loan installments, there are no prepayment penalties.

Some Additional HECM Loan / Reverse Mortgage Loan Facts

Many retirees use a reverse mortgage
A reverse mortgage allows older homeowners to access a portion of the value of their home.
A reverse mortgage is a specialized loan for homeowners 62 and older.
A reverse mortgage is eligible only for the borrower’s primary or principal residence.
FHA-insured reverse mortgages (Home Equity Conversion Mortgages) are insured by the Federal Housing Administration, providing protection to borrowers, lenders, and beneficiaries.
HUD counseling (from an independent HUD-approved third-party counselor) is required before the borrower incurs any loan charges.
Individual income taxation does not usually apply to the cash or proceeds received from a reverse mortgage. However, we recommend that you speak with your tax expert for specific advice.²
It is not a government grant, but rather a loan that must be repaid when the home is sold, the final borrower dies or permanently moves out, or the loan requirements are not met.²
The earnings of reverse mortgages may have an impact on government needs-based programs such as Medicaid and Medi-Cal. Before acquiring a reverse mortgage, those receiving such benefits should contact a professional.
A reverse mortgage loan is secured by a mortgage on the home, and noncompliance with loan terms may result in foreclosure.
It is a unique loan. Program prices, fees, terms, and conditions, on the other hand, are not available in all states and are subject to change.

¹There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowner’s insurance, and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and are subject to change.

²Borrowers should seek professional tax advice regarding reverse mortgage proceeds.