Reverse Mortgage

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You've probably noticed an increasing number of commercials on radio and television about reverse mortgages lately. With so much information out there, it can be challenging to understand what a reverse mortgage truly entails and whether it's a suitable option for your circumstances. To help you make an informed decision, we've broken down the essentials in an easy-to-understand format, addressing common myths and misconceptions along the way.

A Reverse Mortgage, also known as a Home Equity Conversion Mortgage (HECM), can be a powerful retirement financial tool for borrowers aged 62 and over. It allows homeowners to access the equity in their principal residence by receiving a monthly income, establishing a line of credit, obtaining a lump sum, or any combination of these options. In essence, a reverse mortgage can help ensure financial security throughout retirement.

There are two primary types of Reverse Mortgages: (1) FHA and (2) Non-FHA proprietary jumbo reverse mortgages. The key differences lie in the available loan amounts and the guidelines used for qualification.

The FHA variety is insured by the Federal Housing Administration (FHA), which falls under the U.S. Department of Housing and Urban Development (HUD). Alternatively, a Jumbo Reverse Mortgage is not insured by the FHA and instead follows guidelines created by private companies. These often allow for higher property values and loan amounts, typically offering more options.

Despite their potential benefits, many misconceptions surround reverse mortgages, deterring some from even considering them. Let's address a few of the most common myths:

Myth #1: The bank will own your home 

Fact: With a reverse mortgage, you or your estate will continue to retain ownership of your home's title. The title can also be held in a living trust, if preferred.

Myth #2: Your heirs will inherit the reverse mortgage debt 

Fact: A reverse mortgage is a "non-recourse loan," meaning your heirs will never owe more than the value of the home. They have the option to sell the property to repay the loan balance and retain any remaining equity or keep the house for themselves by paying off the reverse mortgage with other assets or a traditional home loan.

Myth #3: You must pay income taxes on the proceeds from a reverse mortgage

Fact: Neither the federal nor state governments tax the proceeds from a reverse mortgage, as they are categorized as loan proceeds, not earned income.

Myth #4: The reverse mortgage will affect your Social Security and/or Medicare benefits

Fact: A reverse mortgage generally does not affect Social Security or Medicare benefits. However, borrowers receiving Social Security Disability, Medicaid, or Medi-Cal should contact the respective agency to determine any potential effects.

Myth #5: Borrowers can be forced to leave their home

Fact: Borrowers cannot be forced to leave their home as long as they continue to live in the property as their primary residence, pay property taxes, insurance, HOA dues on time, and perform normal maintenance.

Every situation is unique, and many factors determine if a reverse mortgage is a good fit. To find out if you qualify for a reverse mortgage program and explore the available options, contact us today! Let us help you separate fact from fiction and make an informed decision about this potential retirement planning tool.