1. A
reverse mortgage sells the home to the bank
False. Lenders are not in the
business of owning homes -- they wish to
make loans and earn interest. The homeowner
keeps the title to the home in their name.
What the lender does is add a lien onto the
title for the amount that is borrowed so
that the lender can guarantee that it will
eventually get paid back the money it lends.
2.
Heirs will not inherit the home
False. The estate inherits the home
as usual but there will be a lien on the
title for the balance of the reverse
mortgage. The balance is whatever proceeds
were received from the reverse mortgage plus
interest.
For example, let's assume
someone takes out a reverse mortgage and
owes $50,000 after 5 years. Then the
homeowner passes away and the estate sells
the house for $250,000. The lender gets
$50,000 and the estate inherits $200,000.
A reverse mortgage is a
"non-recourse" loan which means the only
asset guaranteeing the loan is the property
itself. If the property value is less than
the balance of the reverse mortgage, the
lender can not request other assets from the
estate and must make an insurance claim for
the loss to the FHA.
3.
The homeowner could get forced out of the home
False. The FHA reverse mortgage was
created specifically to allow seniors to
live in their home for the rest of their
lives. Because the homeowner receives
payments from a reverse mortgage instead of
making payments to a lender, the homeowner
can never be evicted or foreclosed on for
non-payment.
4.
Someone can outlive a reverse mortgage
False. The reverse mortgage
becomes due when all homeowners have
permanently moved out of the property or
passed away. There is no time limit.
5.
Social Security and Medicare will be affected
False. Government entitlement
programs such as Social Security and
Medicare are not affected by a reverse
mortgage. However, need-based programs such
as Medicaid can be affected. To remain
eligible for Medicaid, the homeowner needs
to manage how much is withdrawn from the
reverse mortgage in one month to ensure they
do not exceed the Medicaid limits.
6.
The homeowner pays taxes on a reverse mortgage
False. The proceeds from a reverse
mortgage are not considered income and are
not taxable. Furthermore, the interest on
reverse mortgage is tax deductible when it
is repaid.
7.
There are large out-of-pocket expenses
False. Typically the only
out-of-pocket expenses are the cost of the
counseling and the appraisal.
8. A
reverse mortgage is similar to a home equity
loan.
False. The only similarity
between a reverse mortgage and a home equity
loan is that both use the home's equity as
collateral.
-
Any homeowner can
apply for a home equity loan. A
homeowner must be age 62 to apply for a
reverse mortgage.
-
A home equity loan
must be repaid in monthly payments over
5 or 10 years. A reverse mortgage is not
paid back until the homeowner moves out
of the property or passes away.
-
A home equity loan
requires stable income and a solid
credit score. A reverse mortgage does
not consider income or credit.
-
A home equity loan
charges no closing costs but has a
higher interest rate over the life of
the loan. A
reverse mortgage charges
upfront closing costs but has lower
interest over the course of the loan.
