Misrepresentations
We have identified 8 common misrepresentations related to reverse mortgages
- A reverse mortgage sells the home to the lender
- Heirs will not inherit the home
- The homeowner can get forced out of the home
- You can outlive the reverse mortgage
- Social security and Medicare will be affected
- The homeowner pays taxes on a reverse mortgage
- There are large out-of-pocket expense
- A reverse mortgage is similar to a home equity loan
1. A reverse mortgage sells the home to the bank
Lenders do not want to own homes, yet only make loans and earn interest. The homeowner will always keep the title to their home in their name. The lender adds a lien onto the title for the amount borrowed so that the lender can make sure that it will eventually get paid back on the money they had lent.
2. Heirs will not inherit the home
The estate inherits the home but there will be a lien on the title for the balance of the existing home mortgage. The balance is whatever proceeds were received from the reverse mortgage plus the interest accrued.
If the property value is less than the balance of the reverse mortgage, the lender is not permitted to tap other assets from the estate and must make an insurance claim for the loss to the FHA.
3. The homeowner could get forced out of the home
The FHA insured reverse mortgage was created to allow senior citizens to live in their home for the rest of their lives. Since the homeowner 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. It is however 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 permanently moved out of the home or have passed away.
5. Social Security and Medicare will be affected
Entitlement programs such as Social Security and Medicare are not affected by a reverse mortgage. However, needs- based programs such as Medicaid can be affected. Consult a professional.
6. The homeowner pays taxes on a reverse mortgage
Money from a reverse mortgage is not considered income and is not taxable. Also, interest on a reverse mortgage is may be tax deductible when repaid. Consult a tax professional.
7. There are large out of pocket expense
Normally, the only out of pocket expense are the cost of counseling and the appraisal. Other costs can be financed in the loan.
8. A reverse mortgage is similar to a home equity loan
The only likeness between a reverse mortgage and a home equity loan is that both use the home’s equity as collateral.
