reverse mortgage

“Don’t get a reverse mortgage, you’re giving your home to the bank.”
Having been in the reverse mortgage business for the better part of a decade, I have heard many things said about reverse mortgages. Unfortunately for the general public, much of it is not true.

The reverse mortgage program seems to have fallen into this void of misinformation where it can be difficult to distinguish myths from the truth.

Take the quote above. I have heard variations of this quote from potential clients, friends, family, articles, and even on an episode of “Modern Family.” But it simply is not true.

Similar to a typical mortgage, the borrower retains title to their home with a reverse mortgage. The borrower can sell the home at any time and pay off the reverse mortgage at any time.
“They’ll kick you out of your home!”
The only way a borrower could be forced out of their home because of a reverse mortgage is if they do not pay their property taxes or homeowner’s insurance (but that is true of any mortgage!)

The HECM reverse mortgage program as we know it today began back in 1988 when Ronald Reagan signed it into law. It is insured by FHA and closely regulated by HUD. And as you can probably imagine, a government insured program dealing with seniors and their homes, is heavily regulated with plenty of consumer protection features.

For instance, a borrower is protected against their home depreciating in value. If the amount owed on a reverse mortgage were to rise above the value of the home, the borrower is not forced out of their home.

It is a non-event, and the borrower can continue to use the reverse mortgage funds. In addition, the borrower will never owe back more than what the home could sell for on the open market, and no debt from the reverse mortgage will pass onto heirs.

“Only use a reverse mortgage as a last resort!”
I have heard this one a lot. As the National Council on Aging states on their web site, “Reverse mortgages are best used as part of a sound financial plan, not as a crisis management tool.” Reverse mortgages are used by many different people for many different reasons. Some of our clients still have significant mortgages on their homes and many do not have any mortgage on their home. Did you know that you can buy a home with a reverse mortgage?

“A reverse mortgage can greatly increase your cash flow.”
Alright, I had to sneak in something true. Unlike a traditional Home Equity Line of Credit, there are no required monthly mortgage payments with the reverse mortgage line of credit (must still pay homeowner’s insurance and taxes.) This alone can greatly increase personal cash flow, and allow the individual to direct those monthly mortgage payments towards other expenses.

There is another great feature with a reverse mortgage line of credit. The less money a borrower takes out up front, the more money they will be able to borrow later, because the unused amount grows over time. If used properly, this line of credit can create a nice safety net, leaving the borrower with a rainy day fund to use if necessary.

Give us at AFC Reverse Mortgage a call if you are interested in learning more. We can give you a quote and answer any questions. 610-437-7230.

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