In a game of telephone, a group of people sit in a circle, and one person whispers a message to the person next to them, and so on. Without fail, by the time the message reaches the last person, it has been so distorted that it no longer resembles the original message.

Similarly, when an idea or concept is shared from person to person over time, it can be subject to interpretation, biases, and misunderstandings.

 

The good news is that we can clarify some of the more common misunderstandings with the facts.
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You hold the title and own your home.

With a reverse mortgage, your home is still yours. Just like any other loan, if you meet the requirements of the loan (including paying your property taxes, homeowner’s insurance, and maintenance costs), you will retain ownership of your home.

You can leave your home to your children.

The title will pass to your estate, which will determine how to repay the loan.

There are very few out-of-pocket expenses.

Just like traditional mortgages, there are costs and fees. The largest cost unique to a reverse mortgage is the mortgage insurance premium paid directly to the FHA. This insurance is a benefit, as it insures the term of your loan and provides a non-recourse safeguard that protects you and your heirs. The good news is that most of these can be rolled into the loan, so there are in fact very few out-of-pocket expenses.

Reverse mortgages are beneficial across all socioeconomic levels.

Having access to home equity is good common sense. Its benefit as part of a sound financial retirement strategy can optimize retirement for all demographics.

It’s very different from any other mortgage.

A reverse mortgage is much like a forward mortgage. The main difference is that you have the flexibility to defer monthly payments on the money you borrow if you so desire. The interest is accumulated and settled in one final payment at the end of the loan.

How It Works

Who actually owns the home?

You do. You remain 100% on the title and have total ownership. The lender simply holds a lien on the property, exactly like a traditional mortgage.

How is the amount I’m eligible for calculated?

The "Principal Limit" is calculated based on four factors: the age of the youngest homeowner, current interest rates, the home’s appraised value, and any existing mortgage balance that needs to be retired.

Do I still have to pay property taxes and insurance?

Yes. As the homeowner, you are responsible for staying current on property taxes, homeowners insurance, and maintaining the property in good condition.

What are the requirements for maintaining the home?

You must keep the home in reasonable repair. During the initial appraisal, if major health and safety issues are found, they may need to be addressed as part of the loan process.

How and when does the loan get repaid?

The loan is typically repaid when the last borrower passes away, sells the home, or moves out for more than 12 consecutive months. Usually, the home is sold and the loan is paid off from the proceeds.

What is a "Non-Recourse" loan?

This is a safety feature that ensures that neither you nor your heirs are ever personally liable for the debt. The home is the only asset that can be used to repay the loan.

What options do my heirs have?

Heirs can choose to sell the home and keep any remaining equity, refinance the loan into a traditional mortgage to keep the home, or – if the home is worth less than the debt – turn the keys over to the lender with no further obligation.

Can I pay off the loan early?

Yes. There are no prepayment penalties. You can make payments of any size at any time, or pay the loan off in full whenever you choose.

What is the "Financial Assessment"?

The lender performs a simple review of your income and credit history to ensure you have the financial capacity to pay your property taxes and insurance over the life of the loan.

Why is a counseling session required?

HUD requires all Home Equity Conversion Mortgages (HECM) applicants to speak with a third-party, non-profit counselor. This ensures you have received an independent perspective and fully understand the obligations and benefits of the plan before moving forward.

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