Who Should You Believe About Reverse Mortgages?
With the media publishing articles about reverse mortgages by so called reporters and comments by professionals (financial, CPA, attorney), legislators, and the general public, everyone has an opinion about reverse mortgages. The many articles that have surfaced about reverse mortgages including in MSNBC, Time Magazine, Parade Magazine, Consumer Reports, and the National Consumer Law Center Report all provide information trying to give the impression the reporters have done their research.
Unfortunately these so called reporters have NOT done their research and their articles are NOT based on facts of reverse mortgages. They don’t have documentation supporting their statements. If they had done their research and had the documentation to support their statements the articles would read much differently. Consequently the articles misrepresent reverse mortgages and are painting negative images based on the so called reporters’ biased opinions which spread the misconceptions and misunderstandings of reverse mortgages.
Even the articles that outline the facts have comments that reflect ignorance of reverse mortgages. And the sad point is that people are believing these sources who don’t have the facts or take the time to get the facts.
Think about it. Would you go to a plumber for health issues? Of course not! You go to a doctor. And don’t you go to a specialist for the area of your concern, i.e. a heart specialist for heart disease? So why go to the media, professionals, legislators or others instead of going to a reverse mortgage specialist for the facts on reverse mortgages?
Let me share 15 facts about reveres mortgages that are often misunderstood:
- A reverse mortgage is a mortgage just like any home equity loan where one uses the equity of the home but it has special terms for seniors 62 and older.
- The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title and are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
- There are no income or credit score requirements to qualify for the FHA Home Equity Conversion Mortgage (HECM). (Some proprietary jumbo reverse mortgages may have credit qualifications.)
- No monthly mortgage payments are required.
- There is no limitation on how the funds can be used.
- Offers more options – Funds can be received in monthly payments structured for life or as needed, line of credit (with a growth rate), lump sum, or a combination of these.
- Social Security and Medicare are not affected because it is a loan, not considered income.
- Medicaid (Medical Assistance (MA) in Minnesota) and other government benefits can still be received with the reverse mortgage.
- Borrowers can stay in the home as long as it is their primary residence or in the case of a couple as long as one borrower is still in the home as their primary residence. The due date on the mortgage is the youngest borrower’s 150th birthday.
- At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference. The lender or bank does NOT keep the difference!
- The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership. So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is be sold for as long as they are not retaining ownership. Borrowers are not leaving a debt to their children.
- As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid. (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.)
- Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees. Even though many times they are considered expensive or high they compare to conventional loans, in fact the difference comes down to the FHA Mortgage Insurance Premium. You can see a comparison of the costs in my article, “Reverse Mortgage Costs – High or Mythical?” and “Do You Understand The Reverse Mortgage Closing Costs?”
- FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available. The advantages include:
- Guaranteeing the funds are available for you.
- Guaranteeing the lender against default or shortfalls which means the interest rates are lower compared to other mortgages.
- Providing a line of credit growth rate (available only with reverse mortgages).
- Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.
- The HECM borrowers are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected!”
These facts are all supported in the documents signed at application and at closing including the Important Terms and the Loan Agreement. With the reverse mortgage the sample closing documents are required to be provided to borrowers at the time of application so they have the opportunity to review, have their family and/or attorney review the documents before signing. If they read them they will have the facts as outlined above.
One would think it is a simple answer to the question, “Who Should You Believe About Reverse Mortgages?” However seeing the many articles along with the comments it appears people believe the wrong source. So are you going to believe the media and non reverse mortgage professionals about reverse mortgages? I encourage you to get the facts from a reverse mortgage specialist just as you get your health facts from the health care specialist. Then decide if it is right for your situation.
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- Beware of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!
- You Need To Know Reverse Mortgage Borrowers Are Highly Protected!
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