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San Diego Reverse Mortgage Company

Reverse Mortgages

Listed below are the common myths followed by the facts of reverse mortgages that will bring clarity and assist you in making the most informed decision.

Reverse Mortgage Myths and Facts

Myth: You immediately sign over ownership to your home.

Fact: You retain ownership of your home as long as you comply with the loan guidelines and requirements, which can include: maintaining the property, paying property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable), and avoiding extended absences from the home longer than six months.

Myth: If you take out a reverse mortgage loan, your children will not receive any equity from the home.

Fact: While the amount of equity typically decreases over time with a reverse mortgage, it doesn’t mean there will be no equity left when the last borrower dies. The amount of equity left depends on several factors, including home appreciation, the term of the loan, and optional monthly payments. Your children may still have equity.

couple reverse mortgage

Myth: When you die, your children will be responsible for repaying the loan

FACT: A reverse mortgage is a non-recourse loan, meaning the lender cannot be paid more than the value of the home if the home is sold. So, even if the home’s value declines significantly, the maximum repayment amount can only be as much as the value of the home. They will not be obligated to repay the loan, but have the option of refinancing it to purchase the property themselves.

Myth: You must make monthly mortgage payments with a reverse mortgage.

Fact: While you can choose to make mortgage payments, they are not required with a reverse mortgage. The borrower is still responsible to maintain the property, pay property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable).¹

Myth: Before you can qualify for a reverse mortgage, you must have paid off your first mortgage.

Fact: While any debt on the title of your home must be paid off at closing, as well as having adequate equity in the home, it is not necessary to own your home “free and clear” before getting a reverse mortgage.

Myth: You are not allowed to sell your home if you have a reverse mortgage.

Fact: You can sell your home if you wish and – just like any other mortgage loan – you must pay off the reverse mortgage at closing. There are also no prepayment penalties if you choose to pay off your loan early or make loan payments.

Some Additional HECM Loan / Reverse Mortgage Loan Facts

  • Many retirees use a reverse mortgage.
  • A reverse mortgage allows older homeowners to access a portion of the value of their home.
  • A reverse mortgage is a specialized loan for homeowners 62 and older.
  • A reverse mortgage is eligible only for the borrower’s primary or principal residence.
  • Reverse mortgages that are FHA-insured (Home Equity Conversion Mortgages) are insured by the Federal Housing Administration providing protection for both borrowers, lenders and beneficiaries.
  • HUD counseling (from an independent HUD-approved third-party counselor) is required prior to the borrower incurring any costs associated with the loan.
  • The cash or proceeds you receive from a reverse mortgage typically are not subject to individual income taxation. However, we suggest you consult your tax advisor to provide guidance for your particular situation.²
  • It is not a government grant, but a loan that is repaid in the future when the home is sold or the last borrower dies or permanently leaves their residence.²
  • Reverse mortgage proceeds could affect government needs-based programs such as Medicaid and Medi-Cal. Those receiving such benefits should consult a professional before obtaining a reverse mortgage.
  • A reverse mortgage loan is secured by a mortgage on the home and failure to comply with loan terms could result in foreclosure.
  • It’s a specialized loan. However, program rates, fees, terms, and conditions are not available in all states and are subject to change.

Kevan Green

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