In my experience, the reverse mortgages I've helped clients secure have been the most rewarding kind of loan to assist with. In each instance, obtaining a reverse mortgage has dramatically improved my clients' lives, and as a mortgage consultant, helping to dramatically improve seniors' quality of life and financial security leaves me with a great feeling. Just yesterday I visited a client-turned-friend at her home which, were it not for the reverse mortgage we secured, would've been foreclosed upon. She's been asking me to come by for the past couple weeks to see her garden in the springtime. She lives in a little cottage surrounded an amazing garden - the central work of her past 15 years - and wanted me to see her amazing assortment of flowers and blossoming trees in their full glory - so I'd get a better sense of what my help saved for her.
Of course, being a real estate guy, I haven't always been such a fan of reverse mortgages. I'd heard and seen the consequences of seniors being taken advantage of by predatory loan officers. And I also just instinctively don't like the idea of anybody giving up any equity to a bank. But after working with older clients, and becoming a C2 certified reverse mortgage specialist, I've come to realize that with the help of a knowledgeable and ethical mortgage professional, reverse mortgages can be the best tool for some seniors to better prepare for and improve their retirement. And I've come to realize equity isn't all that matters. Quality of life matters too.
Last, I've come to realize there are lots of myths out there which generate a lot of fear and aversion to this type of loan, so I've put together a list of the top 5 reverse mortgage myths to better inform folks who are considering a reverse mortgage. And if you have any further questions, or something specific about your situation you'd like to discuss, feel free to contact me today.
Myth # 1: The lender owns the home.
You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home, maintaining the home as safe and habitable according to the Federal Housing Administration (FHA) standards, and paying property taxes and homeowners insurance.1
Myth # 2: The home must be free and clear of any existing mortgages.
Actually, many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.1,2
Myth # 3: Once loan proceeds are received, you pay taxes on them.
Reverse mortgage loan proceeds are not considered income and thus should not be subject to income tax. However, you must continue to pay required property taxes, and I am not a tax professional, so I recommended you consult your financial adviser, a tax professional, and any appropriate government agencies for any effect a reverse mortgage could have on your taxes or government benefits.
Myth # 4: The borrower is restricted on how to use the loan proceeds.
Once any existing mortgage or lien has been paid off, the net loan proceeds from your reverse mortgage can be used for any reason. Many borrowers use it to supplement their retirement income, defer receiving Social Security benefits, pay off debt, pay for medical expenses, remodel their home, or help their adult children. You worked hard for this asset, so prudence, along with budgeting, should be the approach to enjoying proceeds received from your reverse mortgage.
Myth # 5: Only poor people need reverse mortgages.
The perception of the reverse mortgage as assistance for “poor” borrowers is changing: Many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance their overall quality and enjoyment of life through the addition of a reverse mortgage to their portfolios. You can find my article on reverse mortgages as powerful, financial tools to extend and enhance retirement funds here.
1. You must still 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 requirement. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
2. Your reverse mortgage loan will accrue interest that together with principal will need to be repaid when the loan becomes due.