MYTH: Everyone says this is a “loan of last resort”
FACT: While a reverse mortgage can be a key resource during emergencies and times of need, borrowers are increasingly using their home equity as a means to unlock more possibilities in their later years, such as using the proceeds to travel the world, buy their dream home, or fund a living inheritance. It’s your home equity, what you do with it is completely up to you.
MYTH: I saw on social medial that i could get kicked out of my house.
FACT: With a reverse mortgage, you own your home, not the bank, and can’t be kicked out so long as you uphold the terms of the loan. The lender simply puts a lien on the property to ensure the loan will be repaid, just as with a traditional forward mortgage.
MYTH: My neighbor told me I won’t be able to sell my home.
FACT: A reverse mortgage creates zero obstacles to selling your home. Like a traditional forward mortgage, it will need to be paid off at closing, but there are no prepayment penalties, and you could get less cash at the sale.
MYTH: I read online that there are a lot of fees.
FACT: With the exception of mandatory reverse mortgage counseling costs and FHA insurance (on HECM loans only), the fees for the reverse are generally the same as those for a traditional forward mortgage. It’s also important to remember that with reverse, most fees are added onto the loan balance, which means you pay little out-of-pocket up front.
MYTH: My kids say they’ll get stuck with a huge bill after I’m gone.
FACT: A reverse mortgage is a “non-recourse” loan, which means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender can only enforce the debt thought the sale of the property and cannot look to your other assets (or your estate’s assets) to meet any outstanding balance. If the loan balance is higher than what the home is worth, your heirs will not be responsible for paying the difference when the home is sold to repay the balance.
MYTH: I heard that I can’t leave my house to my kids.
FACT: Several factors, including your home value increasing over your lifetime, can make it possible to pay off a reverse mortgage and still leave your home/equity to your heirs. You can also choose to take less out of your home in the beginning, pay down the balance as you go, or simply use a reverse mortgage to establish a line of credit to be used only if you truly need it, which would help you to retain more equity in the home.
The bigger question is: do your heirs want the home? For many children, seeing their parents happy and thriving in retirement far outweighs any potential inheritance they may receive. A reverse mortgage can help with this, so it’s worth it to have a conversation with your heirs about what is most important to them.