Reverse Mortgages are a special type of home loan for old homeowners, especially those who are in their post retirement age in which they do not have to make monthly payments. Still, they are responsible for the taxes and insurance as they are officially the owner of the house.
However, in recent years, the concept of reverse mortgages has been a budding one, and that is exactly why many myths have arisen regarding this concept. If you or anyone else in your family plans to opt for a reverse mortgage, you need to know more about these myths and the actual truth about this idea.
Thus, Here Are Ten Myths and Truths Regarding The Topic of Reverse Mortgages:
1. A Reverse Mortgage Works Just Like Any Other Home Loan
However, this is incorrect because for a home loan, you need to pay monthly installments regularly; however, in the case of a reverse mortgage, the borrower needs to make the entire payment once he or his ancestors sell the house. The amount of interest is added to each month’s balance as well.
Opting for a reverse mortgage is a very tough decision because once you are in it, you cannot come out of it without selling your home to pay off the debt. Thus, one should carefully consider all the options available and avoid using all the equity he or she has built up in the house.
Another difference is that the home loan is accredited against one’s income or credit history while there are no such requirements for a reverse mortgage.
2. Reverse Mortgages Are Sought For The Sake Of Vacations
Another myth says that a reverse mortgage is opted for because a person wants to enjoy a vacation in a foreign land but research shows that reverse mortgages are mostly used by people to supplement their incomes in order to pay off their additional responsibilities as if repayment of a loan etc. About 33% of homeowners opted for a reverse mortgage only to make sure they lived in their houses for a longer interval of time.
3. The Lender Will Become The Owner Of The House In Case Of A Reverse Mortgage
This is nothing more than a myth that the lender becomes the owner of your house it is simply that the lender puts a loan against your house, just as it happens in simple mortgages. However, the only difference is that a person does not have to pay monthly installments in this scenario but you are without a doubt responsible for the payment of the taxes and insurance as you are the owner of the house.
4. Reverse Mortgages Are Expensive
It is a common myth that reverse mortgages are costly, but that may not be true because in the case of a home equity loan, you have to incur additional costs such as origination fee, third-party closing charges, and a servicing fee while all this can be made part of the reverse mortgage loan. You, as a borrower, will only have to pay insurance which ensures that one will get the expected loan payments. Furthermore, a reverse mortgage does not demand a deficit from the borrowers or their ancestors when the value of the house is less than the due amount.
5. I Might Be Forced out of My House
This myth is not at all true because until and unless you continue to live in the house as your primary residence, pay insurance and taxes and maintain the property you will not have the fear of being kicked out of your house and you can sell it off anytime you like in order to repay the loan.
6. Reverse Mortgages Are To Be Used As The Final Resort
This myth might sound beneficial to you but it’s not because if you wait for a crisis and then revert to a reverse mortgage then you need to keep this fact in your mind that reverse mortgages are not a crisis management tool because a little income each month is in no way going to help you ease your situation. If you want to go for a reverse mortgage, do it when you are at the start of a problem because too much thinking might change a small issue into a much larger one.
7. Reverse Mortgages Leave Nothing For Your Heirs
This is a fact that actually depends on the value of your house. It might be true if, at the time of sale, the value of the house is less than the due amount, but it may not be true if the value of the house is greater than the due amount, as this might give the excess amount to your descendants.
8. Most Borrowers Taking Out Reverse Mortgages Are Elderly Widows
When the concept of reverse mortgages was initiated, mostly elderly women opted for it to supplement their incomes, but now the trends have changed, and many elderly couples also tend to take out a reverse mortgage to help them in the case of emergency. Even younger people have started opting for such loans to pay off their prior debts as a result of growing competition, but the uniqueness of reverse mortgages makes it such that the age of the youngest borrower can determine how much you can be lent.
9. Reverse Mortgages With Fixed Rates Are Best
In the case of simple mortgages, a fixed rate is fruitful, but in the case of the reverse mortgage, this may lead you to pay a larger sum as interest because a borrower will have to draw all his funds at the time of closure. Thus, an adjustable reverse mortgage is better.
10. Most Reverse Mortgage Borrowers Who Had To Face Foreclosure Were Scammed
This is not true because most borrowers who fail to pay their taxes and insurance regularly may face foreclosure. This may be the case with old couples who borrow a lump sum of money and spend it quickly, hence resulting in an inability to pay insurance and taxes. However, there are scammers also who try to fool people by offering them really easy deals that may later lead to foreclosure.