Reverse Mortgages Myths Corrected:
Myth # 1: The lender owns the home
Reality: Borrower retains title to home, no one is added to title, the mortgage lien is recorded, and the borrower is entitled to all annual appreciation in the value of the property. The appreciation in value often exceeds the increase in the outstanding mortgage debt, so the borrower gets one of the major benefits of owning real estate.
Myth #2: The home must be free and clear of existing liens
Reality: Home Equity Conversion Mortgages (HECM) are designed to pay off existing liens, which may include first and second mortgages.
Myth #3: Loan proceeds are taxed
Reality: HECM proceeds are not income, therefore not taxed.
Myth #4: There are restrictions on how to use proceeds
Reality: Any proceeds remaining after paying off liens can be used however
the borrower wants, with no restrictions. As a protection for borrowers, if the proceeds are being taken in a lump sum, the borrower can only get one-half the first year, and the remaining one-half the second year. This protection is designed to reduce fraud on an unsuspecting senior.
Myth #5: Only poor people need HECMs
Reality: There was a time when Federal Housing Administration (FHA) guaranteed HECM Reverse Mortgage loans were considered the “loan of last resort,” because no credit check was required and the borrowers credit score was NOT considered in the approval process.
Today the FHA approval process requires all borrowers to prove that they will have sufficient income to make the annual real estate tax and property insurance payments, and be able to maintain the home. Many FHA reverse mortgage borrowers, use the loan proceeds to provide an opportunity to diversify their retirement investment portfolios, and help ensure against overdrawing existing retirement assets, and outliving their funds.
Can I protect my spouse from becoming homeless after I am gone?
To learn about spousal protection attend a Workshop, request a free consultation or call (719) 302-5508 to schedule an appointment.