When considering getting a reverse mortgage on a home, a homeowner may find that they are bombarded with a wealth of information about the process, both positive and negative. There are many misconceptions about the process, and reverse mortgage lenders work diligently to ensure that those who are interested in this opportunity are fully informed. The following are some common myths about this specialized lending process.
Myth: The lender will own the house.
Truth: The homeowner will retain the title to his or her house for the duration of the loan. He or she can also sell it at any point in time. The borrower is responsible for paying their utilities, property tax, and insurance payments.
Myth: The heirs of the borrower will be responsible for repayment.
Truth: This type of loan is referred to as a non-recourse loan. This means that if the homeowner dies or abandons the dwelling, it will be sold to repay the debt. Since the amount owed is capped by the market value of the house, there will be no debt liability remaining for family members to take care of.
Myth: A mortgage must be paid off in order to get approved for a reverse mortgage.
Truth: This specialized payment option is ideal for those who have a large portion of the note paid off, but it does not have to be paid in full. Reverse mortgage lenders retain the first lien position. This means that the existing house note must be repaid using the money from the reverse loan. The difference goes to the owner.
Myth: Reverse mortgage lenders can evict the borrower if the value of the house goes down or if the homeowner outlives the worth of the loan.
Truth: The only way a person can be evicted under this arrangement is if they do not adhere to the rules of the loan. Proper maintenance of the house and paying insurance, interest, and property taxes are the only requirements to maintain the arrangement.
Myth: Money received from this arrangement must be used for a specific, predetermined purpose.
Truth: Money received can be used for whatever purpose the owner chooses. Reverse mortgage lenders suggest speaking with a financial advisor so that the money can be used to its fullest potential, but it is not a requirement.
There are a variety of benefits to this borrowing arrangement that many homeowners find attractive. It allows the owner to retain a substantial amount of equity in the home. They can also occupy the house as a primary residence. The money received can be beneficial to someone who needs some additional cash for major expenses, such as college expenses, paying down a traditional house note, or paying off debt. Be sure to speak to a variety of reverse mortgage lenders to get a full idea of what to expect when considering this type of lending option.