How Do Reverse Mortgages Work: Reverse Mortgage Myths Explained
When it comes to reverse mortgages, we understand that people often have a lot of questions. One of the most common questions we hear is often as simple as "How do reverse mortgages work?" As part of our continuing effort to make sure that homeowners and family members learn as much as possible about reverse mortgages before making an informed decision, we do our best to provide accurate and in depth information.
There are many misconceptions about the reverse mortgage process and a whole lot of myths and misstatements as well. It is important that individuals who might be interested in entering into a reverse mortgage learn enough to be sure that a reverse mortgage is the right choice for them.
Reverse Mortgages Can Be Beneficial for Many Homeowners
The first step toward becoming an informed consumer is to learn some basics about this special type of loan. So how do reverse mortgages work? First of all, this transaction is a home-equity loan of a special type that is meant for those homeowners 62 years of age and older.
The purpose of this type of mortgage is to keep senior citizens in their homes while allowing them to use the equity they have built over the years for other expenses. Basically, the homeowner is able to use the value of the home without selling it.
Unlike a traditional home loan, the reverse mortgage does not involve a lender holding title to the property. The lender pays, on a monthly basis or in a lump sum, and assumes home equity over time.
Strict regulations recently set by the Federal Housing Administration (FHA) are designed to protect borrowers and ensure that seniors are able to take reverse mortgages without the risks of typical home equity loans.
Myths About Reverse Mortgages
With the growing popularity of reverse mortgages, this unfortunately also means there is a lot of inaccurate information out there as well. Ask someone on the street, a friend, or relative, "How do reverse mortgages work?" and you will get an answer that may contain some correct information. However, chances are, if that person is not well informed the statements will contain a myth or two about this subject as well.
In the interest of clearing the air about reverse mortgages, let us take a closer look at some of the common misinformation.
Myth: With a reverse mortgage, the lender takes title to the home.
Fact: The homeowner remains on the title and remains the owner of the home throughout the loan period.
Myth: If there is already a mortgage on the property, that home does not qualify for a reverse mortgage.
Fact: In some cases, a homeowner can choose to pay off a current mortgage with proceeds from the new reverse mortgage, thus eliminating monthly mortgage payments.
Myth: This type of mortgage is for low-income senior citizens only.
Fact: Property owners with a wide range of incomes may benefit from a reverse mortgage in order to improve their financial situation during retirement.
Myth: Excellent credit is required for this type of loan/mortgage.
Fact: While household income and credit will be reviewed during the process, credit requirements for a reverse mortgage are not as strict as with a traditional home loan. The main purpose of reviewing your credit and income will be as a protection to ensure that you can stay current on taxes, insurance, and maintenance of your home throughout the loan period.
Myth: You can only spend the funds obtained from reverse mortgages in certain ways.
Fact: It is your home and your money, and in most case, the homeowner has complete discretion on how the money is used.
Myth: You have to make this decision without help, even if you do not understand the details.
Fact: Homeowners who are interested in obtaining a reverse mortgage are required to attend education/counseling sessions in person or by phone with an independent advisor that has FHA approval. Options and benefits of reverse mortgages are clearly explained to make sure that each individual makes the choice that is best for them financially.
Learn More About How Reverse Mortgages Work
There are several other myths about reverse mortgages, and this information only scratches the surface. If you are interested and think a reverse mortgage may be right for you, we urge you to contact one of our California, Pennsylvania, and Florida reverse mortgage professionals today to learn more about reverse mortgage requirements and myths.