6 True and False Statements About Reverse Mortgages

There are many misconceptions when it comes to reverse mortgages or a home equity conversion mortgage (HECM). For one, the guidelines and qualifications are intended to help a specific group of people.  However, reverse mortgages aren’t always used in the manner the U.S. Department of Housing and Urban Development intended them to be used when they were introduced in 1961. If you’ve recently been warned against an El Paso reverse mortgage, we’re here to offer you some facts before you completely rid the idea.

First, reverse mortgages were designed to assist those 62 years or older with the option of accessing their equity without the need to sell their home. Other qualifications include being the owner of the home or possessing a small mortgage. There are two types of reverse mortgages: Home Equity Conversion Mortgage (HECM) and proprietary reverse mortgages. HECMs are issued by a mortgage lender and insured by the Federal Housing Administration. Proprietary reverse mortgages are insured by private lenders and are not subject to the regulations of HECMs; however, most lenders will follow the same practices such as requiring counseling with a third-party to ensure the borrower is fully aware of the terms of the loan.

Now, let’s explore the myths and realities of reverse mortgages.

FALSE: Reverse mortgages mean you lose your home to the bank.

TRUE: As a borrower, you don’t lose your home’s title.

EXPLANATION: Since you’d be required to pay property taxes, homeowner’s insurance, and other terms of the loan, failure to pay could result in foreclosure. Be sure to read the details of the loan prior to signing as the terms as always defined in the contract. Also, ask as many questions as possible. Having the information upfront will allow you to make a well-informed decision.  

FALSE: Reverse mortgages are higher and have outrages fees.

TRUE: Interest rates are similar to FHA loans and fees will depend on the lender.

EXPLANATION: Rates will ultimately vary by lender. Factors that are taken into consideration include the value of the home, servicing fees, paying off an existing loan, your age, any prevailing interest rates, the loan limit, and any other determinants as defined by the lender.

FALSE: Reverse mortgages should be a last resort.

TRUE: Homeowners use a reverse mortgage as a credit line for a safety net in case of emergencies.

EXPLANATION: There are many benefits to reverse mortgages. Among them include a second source of income for those who’ve retired and suddenly find themselves with limited income. Since the loan doesn’t require a monthly payment, as long as you (the homeowner) don’t sell your home, the loan is repaid after you pass away. Many reverse mortgage borrowers use the loan for emergency medical expenses, much-needed home maintenance, and other personal obligations.  

The Bottom Line

Reverse mortgages are a viable option for many homeowners who need the additional income. By consulting with My Home Loans in El Paso, you can receive all the additional information necessary to determine if this type of loan is right for you. Simply contact us today!