There's a lot of bad information floating around out there about reverse mortgages. Let's clear it up. Here are the myths you've probably heard, side by side with what's actually true.
These are the ones I hear most often. If any of them sound familiar, keep reading. The truth is usually a lot better than the myth makes it sound.
You retain title to your home as long as you meet the loan guidelines: maintaining the property, paying property taxes, homeowner's insurance, flood insurance, and homeowners association dues if they apply, and avoiding extended absences longer than six months.1 Just like any other mortgage, a lien is placed on the property to secure future repayment.
Equity typically decreases over time with a reverse mortgage, but that doesn't mean there won't be any left when the last borrower passes away. Home appreciation, length of the loan, and any optional monthly payments all play a role. There can absolutely still be equity left for your children.
A reverse mortgage is a non recourse loan. The lender can only be repaid from the proceeds of the home sale, and never for more than the value of the home. Even if the home decreases in value, the maximum repayment can only be up to the home's value. Your heirs aren't responsible for the loan, but they do have the option to refinance and keep the home if they want to.
You can choose to make mortgage payments, but they're not required. You're still responsible for maintaining the property and paying property taxes, homeowner's insurance, flood insurance, and homeowners association dues if they apply.1
Any debt on your home's title has to be paid off at closing, and you need adequate equity in the property, but you don't have to own your home free and clear before getting a reverse mortgage. The reverse mortgage proceeds typically pay off the existing mortgage as part of closing.
You can sell your home whenever you want. Just like any other mortgage loan, you pay off the reverse mortgage at closing. There are no prepayment penalties either, so you can pay off the loan early or make loan payments any time without a penalty.
A quick look at the biggest misconceptions about reverse mortgages and what's actually true.
Beyond the classic myths, here are a handful of things worth knowing about reverse mortgages that don't get enough airtime.
If you've heard something about reverse mortgages and want to know if it's true, just ask. I'll give you a straight answer.
1 There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrowers are still responsible for paying property taxes, homeowner's insurance, and maintaining the property. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
2 Borrowers should seek professional tax advice regarding reverse mortgage proceeds.
*Borrowers must continue to pay property taxes, homeowner's insurance, and home maintenance costs.