ROTTERDAM, August 29 -- There are 8 common myths about reverse mortgages:
1. A reverse mortgage sells the home to the bank 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 so that the lender can guarantee that it will eventually get paid back the money it lends. 2. Heirs will not inherit the home The estate inherits the home as usual but there will be a lien on the title. The lien is whatever proceeds were received from the reverse mortgage plus accrued interest. For example, let’s assume someoneone 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 that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt. Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure. 3. The homeowner could get forced out of the home The HECM reverse mortgage was created specifically to allow seniors to live in their home for the rest of their lives. Because the homeowner typically 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. However, it is the homeowner’s responsibility to maintain the home in good condition, keep property insurance current, and pay the property taxes. 4. Someone can outlive a reverse mortgage The reverse mortgage becomes due when all homeowners have moved out of the property for 12 consecutive months or passed away. 5. Social Security and Medicare will be affected 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 To remain eligible for Medicaid, the homeowner needs to manage how much is withdrawn from the reverse mortgage in one month to ensure they do not exceed the Medicaid limits. You should consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits. 6. The homeowner pays taxes on a reverse mortgage The proceeds from a reverse mortgage are not considered income and are not taxable. Furthermore, the interest on reverse mortgage can be tax deductible when it is repaid. Consult a tax advisor for more information. 7. There are large out-of-pocket expenses Typically The majority of lender closing costs and fees can be financed into the reverse mortgage loan. 8. A reverse mortgage is similar to a home equity loan The only similarity between a reverse mortgage and a home equity loan is that both use the home’s equity as collateral.
0 Comments
Leave a Reply. |
Thank you for choosing to make a difference through your donation. We appreciate your support.
This website uses marketing and tracking technologies. Opting out of this will opt you out of all cookies, except for those needed to run the website. Note that some products may not work as well without tracking cookies. Opt Out of CookiesCategories
All
Archives
April 2024
|