Misconception #1: Reverse mortgages require you to give up ownership of your home.
One of the most significant misconceptions about reverse mortgages is that they require you to give up ownership of your home. This is not true. With a reverse mortgage, you retain ownership of your home, and you can continue to live in it for as long as you want. The lender only has a lien on the property, which means that they can only sell it to recoup the outstanding loan balance when the homeowner no longer lives in the home or passes away.
Misconception #2: Reverse mortgages are only for people who are struggling financially.
Another common misconception about reverse mortgages is that they are only for people who are struggling financially. While it is true that many people use reverse mortgages to supplement their retirement income, they can also be used for a variety of other purposes. For example, you could use a reverse mortgage to pay off an existing mortgage, make home improvements, or cover medical expenses.
Misconception #3: Reverse mortgages are expensive.
Another misconception about reverse mortgages is that they are expensive. While it is true that reverse mortgages have higher upfront costs than traditional mortgages, the overall cost of a reverse mortgage may be lower for some borrowers. This is because with a reverse mortgage, you do not have to make monthly mortgage payments. Instead, the loan balance is paid off when the home is sold.
Misconception #4: Reverse mortgages are a last resort.
Many people believe that reverse mortgages should only be considered as a last resort, but this is not necessarily true. Reverse mortgages can be an excellent option for homeowners who want to access their home equity without having to sell their home or make monthly mortgage payments. Additionally, there are some restrictions on how the funds from a reverse mortgage can be used, so it is important to understand the terms of the loan before making a decision.
Misconception #5: The lender will own your home when you die.
As previously mentioned, with a reverse mortgage, you retain ownership of your home. When the homeowner passes away, the lender will only sell the home to recoup the outstanding loan balance. Any remaining equity in the home will go to the homeowner's heirs. If the home is sold for more than the outstanding loan balance, the homeowner's heirs will receive the excess proceeds.
Misconception #6: Reverse mortgages are not regulated.
Reverse mortgages are regulated by the Federal Housing Administration (FHA). The FHA sets guidelines for reverse mortgages, including the amount that can be borrowed, the fees that can be charged, and the requirements for the homeowner. Additionally, many states have their own regulations for reverse mortgages.
Misconception #7: You can owe more than your home is worth with a reverse mortgage.
With a reverse mortgage, you cannot owe more than the value of your home. The amount that can be borrowed with a reverse mortgage is based on the appraised value of the home, the age of the homeowner, and the interest rate. The loan balance will never exceed the value of the home, even if the home decreases in value over time.
Misconception #8: You can be evicted from your home with a reverse mortgage.
As previously mentioned, with a reverse mortgage, you retain ownership of your home. You cannot be evicted from your home as long as you continue to live in it, maintain the property, and pay property taxes and insurance.
Misconception #9: Reverse mortgages are only for single-family homes.
Reverse mortgages are available for a variety of property types, including single-family homes, multi-family homes (up to four units), and some manufactured homes that meet FHA requirements. However, co-ops and most mobile homes are not eligible for reverse mortgages.
Misconception #10: The lender can force you to sell your home.
With a reverse mortgage, the lender cannot force you to sell your home. As long as you continue to live in the home, maintain the property, and pay property taxes and insurance, you can stay in the home for as long as you want. If the homeowner no longer lives in the home, the lender has the right to sell the home to recoup the outstanding loan balance.
Therefore, there are many misconceptions about reverse mortgages that can cause confusion and prevent homeowners from considering this financial tool. However, it is important to understand the facts about reverse mortgages and how they work. Reverse mortgages can be an excellent option for homeowners who want to access their home equity without having to sell their home or make monthly mortgage payments. If you are considering a reverse mortgage, it is important to do your research, speak to a reputable lender, and understand the terms of the loan before making a decision.