Rate This:Top Myths about Reverse Mortgages
Reverse mortgages are special loans available to senior homeowners ages 62 and older. With reverse mortgages -- also known as Home Equity Conversion Mortgages -- seniors can supplement their incomes with regular proceed disbursements, receive larger lump sums of cash or even open low-interest lines of credit. That said, many people don't know the specific benefits of the reverse mortgage program, or they're unaware of recent federal rule changes that have made the program safer and streamlined. Now, seniors who get reverse mortgages can stay in their homes with less long-term risk, all while cashing in on their long-earned home equity. Here, we'll debunk many of the most common myths surrounding the reverse mortgage program. Read on to get the facts about reverse mortgages.8 Active Questions | Add a Question
People who take out reverse mortgages can remain in their homes as long as they pay their property taxes and home insurance premiums. The fact that reverse mortgages allow such stability is a strength of the program.
This is no longer the problem it once was. Years ago, people who got home mortgages could opt to immediately receive all of their loan proceeds. However, some people would spend this money right away, leaving them vulnerable to home insurance and property tax costs, and that would put their loans into default. Now, federal rules have been changed so that people can only receive 60 percent of their proceeds during the first year.
Reverse mortgages are insured. This is great for borrowers, because it means they're not on the hook if their homes lose value before their loans become due.
Actually, a study by the Center for Retirement Research at Boston College found that federal rule changes made from 2013 to 2015 are expected to cut the default rate on reverse mortgages by half. A bit part of this is the more intensive screening required for borrowers.
It's easiest to get a reverse mortgage if you own your home outright, but some lenders will grant these mortgages to seniors who owe very little on their mortgages.
Seniors may be worried about their loans becoming due in the event they need to temporarily move, which can happen for medical issues and other reasons. However, homeowners must have moved for 12 months before the reverse mortgage loans become due. This gives borrowers the flexibility to relocate temporarily.
Many seniors who get reverse mortgages opt to take their proceeds as lump or regular payments. However, borrowers also have the option to leverage their loan amounts as lines of credit. While this doesn't offer immediate financial flexibility, this can also make it easier for loans to be repaid with a balance left over for other purposes.
Under recently approved federal rules, people who want to get reverse mortgages must be screened to make sure they can pay homeowners insurance and property tax costs -- both of which are federal requirements for avoiding defaults on reverse mortgages. This went into effect three years ago, but many people aren't aware of the changes.