Jeff Rickard

Sometimes, the best intentions ……… BACKFIRE!

Many of my clients have had to endure much unfounded stress because of misinformation about reverse mortgages. This bad information can prevent seniors, whose financial problems could be solved by obtaining a reverse mortgage, from learning more about them. In this article I am taking the opportunity to clear up some of the misconceptions I have often heard.

• At the end of the loan, the lender gets the property.

REALITY: The borrower always retains title and ownership of the property.

• The borrower must make monthly payments.

REALITY: The borrower is NEVER required to make a monthly payment.

• The heirs will be held responsible for repayment.

REALITY: The borrower will never be responsible for more than the value of the home at the time the loan is repaid. Reverse mortgages are non-recourse, which means that in seeking repayment the lender looks to the property – not the borrowers assets, personal property of their heirs.

• Closing costs are expensive.

REALITY: Although closing costs on a reverse mortgage are typically higher than other mortgages, it is because on top of normal costs of a real estate loan, the borrower is charged a mortgage insurance premium which guarantees no debt to them or their heirs. Think of it as a “life” insurance policy to cover a debt higher than the value of the home. Equity left over after sale goes to the borrowers or the estate. IF debt is higher than value, the insurance fund covers the amount due. In most cases, fees to obtain reverse mortgages are financed into the loan. The question is this: If you knew a senior on a fixed income and they had an opportunity to get money from a reverse mortgage and did not have to make a payment during their lifetime, would you suggest they consider it? How much it is worth to a senior to have financial independence? If closing costs are the deciding factor and benefits of the program are not considered, the big picture is being missed.

• My home has to be free and clear to get a reverse mortgage.

REALITY: Not true. Reverse mortgage proceeds can be used to payoff an existing loan – so no more house payments!

• A reverse mortgage will affect Social Security, Medicare and Medicaid payments.

REALITY: Not true. Colorado House Bill 92-1174 states a reverse mortgage will not affect these benefits.

• Proceeds from a reverse mortgage are taxed as income.

REALITY: Not true. Money taken from a reverse mortgage is considered proceeds of a loan and not taxed as income. Interest is accruing inside the loan and is not deductible until the loan is paid in full. So the loan is “tax neutral”. 8. You should consider a revere mortgage only if you are in a desperate financial situation. REALITY: Seniors from all socioeconomic groups, from all walks of life, are taking advantage of the benefits offered by a tax-free reverse mortgage. Some seniors are buying second homes, or giving money to their grandchildren for college. Some are buying long term care policies, or using the money for home care to avoid going to a nursing home, some have purchased new cars or RV’s to travel. It’s their money – they decide!

• If I get a reverse mortgage I can never move.

REALITY: Not true. Some customers have sold their homes, moved to a new property and then obtained a new reverse mortgage on the new home. Some have sold their present home and incorporated the use of a reverse mortgage to buy a new home where everything is on one level.

• The loan comes due when the first borrower dies.

REALITY: Not True. The loan is due when the LAST remaining borrower no longer lives in the home as a primary residence.

Reverse mortgage options are endless and can quite literally change the lives of millions of seniors. It totally changes their financial picture and options they have for their lives. It provides them with dignity and independence to steer their own course and realize dreams or needs that might otherwise go unfulfilled. Money is not the most important thing, but lack of it affects everything that is important.

Trackback URI | Comments RSS