Clearing Up Reverse Mortgage Misconceptions for Homeowners 55+

Retirement is a time for relaxation and enjoying the fruits of your labor, but it is also a time when financial concerns become more pressing. Many seniors worry about how they'll pay for medical expenses, get by on a fixed income, and pass on assets to their heirs. One financial instrument that is often misunderstood but can help those aged 55 and above is a reverse mortgage. Unfortunately, many people do not fully understand reverse mortgages which has resulted in some avoiding use of this helpful tool. Here, we will clear up some of the most common reverse mortgage myths so that you can make an informed decision about whether it is right for you.

Misconception 1: With a reverse mortgage, you no longer own your home.

This is false. With a reverse mortgage the homeowner always maintains title, ownership, and control of the home, as long as you continue to meet your mortgage obligations (i.e., paying property taxes and maintaining the home). The reverse mortgage lender simply has a first mortgage on the title, in the same way as a traditional mortgage. This means that you can stay in your home without making monthly mortgage payments, and you continue to hold all of the equity in your property.

Misconception 2: You’ll owe more than the value of your home. 

This is false. It is federally mandated that all reverse mortgages come with a “no negative  equity guarantee.” As long as you meet the required mortgage obligations, the amount you owe on the due date will never exceed the fair market value of your home. The no negative equity guarantee ensures that you will never owe more than the value of your home, even if the outstanding mortgage balance exceeds the sales price. 

Misconception 3: Reverse mortgages are expensive.

This is false. An appraisal of your property and independent legal advice is required for a  reverse mortgage. Additional fees include a closing and administration fee. When compared to alternatives like downsizing or moving to another home, a reverse mortgage can be an affordable option. The costs of a reverse mortgage are usually financed as part of the loan, so there is usually no cash outlay required upfront. 

Misconception 4: You can’t pass on your home.

This is false. Your heirs will always have the option to keep the property. If there is remaining equity in the house after repayment of the reverse mortgage, your heirs can inherit the property and keep any remaining equity. They also have the option to sell the property and use the proceeds to pay off the loan balance. It’s important to note that your heirs will have to pay off the reverse mortgage when the property is sold or after your death.

Misconception 5: Reverse mortgages are only for people in financial distress.

This is false. Reverse mortgages are a financial tool that can help you access your home equity and improve your retirement security. They can provide supplemental income, finance home improvements, and pay off existing debt. Reverse mortgages are not just for people who are financially distressed; they are also an effective way to manage financial resources during retirement. 

Reverse mortgages are an excellent financial tool for seniors aged 55 and above.  Unfortunately, many seniors are hesitant to take advantage of them due to misconceptions and myths. By debunking some of the most common reverse mortgage misconceptions, we hope that we have given you a clearer understanding of what a reverse mortgage is and how it can 

benefit you. With a reverse mortgage, you can access your home equity and stay in your home without making monthly payments. You'll always maintain ownership of your home, and your heirs will have the option to keep the property. If you're a homeowner aged 55 and above, we encourage you to explore your options regarding a reverse mortgage.