Reverse mortgage myths part two. The truth about reverse mortgages is that most people just don’t understand them. I work with loan officers and Realtors every day, and the vast majority of them have no idea of how a reverse mortgage actually works.
I am a certified reverse mortgage specialist and I have been doing reverse mortgages for over 10 years. FHA insured reverse mortgages technically called HECM, have been around since the 80s. Originally there were no credit or income qualifications and one could borrow a great deal of their homes appraised value. Because of that, many borrowers would cash out the maximum amount of equity and then default on their taxes or homeowners insurance thus causing foreclosures. This gave rise to all the myths that you hear uninformed people still spreading today.
This is part two of a two-part series referencing reverse mortgage myths. To see the first part visit my blog post or my YouTube channel.
Let’s look at four more reverse mortgage myths.
5. Social Security and Medicare will be affected.
FALSE Reverse mortgages do not generate income but rather allow borrowers to tap into the hard-earned equity they have achieved over the years. Technically, one is borrowing money and therefore do not need to file this as income. This will in no way affect your Social Security or Medicare.
6. I would have to pay taxes on the money I get from a reverse mortgage.
FALSE You don’t have to pay taxes on this reverse mortgage because you have already paid the taxes and this is not income. If taxable income is an issue, that makes a reverse mortgage that much better. You can utilize a reverse mortgage to defer withdrawing taxable income from your other assets that could be growing in the marketplace.
7. There are big out-of-pocket expenses.
FALSE All of the cost associated with completing a reverse mortgage refinance, are financed into the loan amount with the exception of two fees at Service First Mortgage. You will need to pay for a HUD approved counselor which will range from roughly $125-$200 and for the cost of the appraisal which will range from $450-$650. For a reverse mortgage for purchase, the cost is roughly the same if not less than a traditional FHA mortgage.
8. A reverse mortgage is similar to a home equity loan.
FALSE A reverse mortgage is only similar to a home equity loan and a HELOC in the respect that you are taking cash out of the equity of your home. They are both mortgages, but almost everything else is different. A reverse mortgage does not require monthly payments like a home equity loan. Once you sign the paperwork for a reverse mortgage, the loan can never be withdrawn unless you don’t pay your taxes and insurance or you move out of the house for more than 12 months. With a home equity loan or a HELOC, if you fail to make the monthly payments your home will be foreclosed upon. Additionally, HELOC’s can be canceled at the bank’s discretion whereas a reverse mortgage cannot.
If you would like to learn more about reverse mortgages including the pros and cons, feel free to call me at 214-945-1066 for your free consultation and written proposal with no obligation.
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