Reverse Mortgages Myths & Misconceptions
Information for Sellers

Reverse Mortgages…Myths & Misconceptions
By Beverly Groves, Sears Real Estate 
   
   A reverse mortgage is a special type of home loan that allows a homeowner who is at least 62 years of age to convert a portion of the equity in their home into cash. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower no longer uses the home as their principal residence. THERE ARE NO MONTHLY MORTGAGE PAYMENTS. 
   How does it work? The interest on this type of loan is paid when the home is eventually sold and the loan is paid in full.  The interest accrues onto the loan balance each month based on the amount of the cash that has been borrowed against either an available line of credit, monthly income payments to the borrower, the full amount of the loan that could be taken out at closing or a combination of the three. The reverse mortgage does not require any income qualification and THERE ARE NO MONTHLY PAYMENTS. 
   There are several myths and misconceptions about this type of loan that we would like to address here;
   1. Will I owe more than my house is worth?  First, the reverse mortgage is never a 100% loan to value…it is only a portion of your equity.  Secondly, as your home appreciates, the equity in your home will also increase.
   2. What if my home does not appreciate or even depreciates?  If, for some reason, you live many years in the home and the value ever becomes less than what you owe, upon the sale of the home th Federal Housing Administration will pay off any of the shortage.  This is called mortgage insurance and works similar to a standard FHA loan, your heirs will never be responsible for any shortage.
   3. Are there any restrictions on how I use the money? With the reverse mortgage, you are able to use the funds you receive for ANYTHING you want!  
   4. If I take this loan out now, do I need to use the money right away?  No, you can close on this loan anytime and still leave the funds in an open line of credit to be drawn upon anytime.  The interest will start on the amount of funds that you have taken out as you receive cash.  There are costs associated that are included in the loan and the interest on those costs would begin right away, but any other cash that you would withdraw at a later date would not be charged interest until the funds are received by you.
   5. Will I be taxed on the funds I receive?  A major benefit to obtaining a reverse mortgage is that all of the disbursements you receive are not taxable income because the funds come from a loan.
   Homeownership does have its privileges.  A reverse mortgage is one viable option that older homeowners and their families should learn about.  Education about this opportunity is the best way to decide if it works for you, your parents or your family as you look at your goals down the road.  When considering a reverse mortgage for changing health care concerns, daily expenses, or recreation, it is important to ask the questions and receive reliable answers that apply to your situation.