Reverse Mortgages or Home Equity Conversion Mortgages (HECMs) have become increasingly popular. Reverse mortgages can be a useful financial tool for older homeowners, but they’re not for everyone.
Here are some tips about reverse mortgages from the National Council on Aging.
- Myth #1: A reverse mortgage works the same as any other type of home loan.
A reverse mortgage is a special type of loan for homeowners aged 62 and older that lets you convert a portion of the equity in your home into cash. But unlike a traditional home equity loan or second mortgage, you don’t have to repay the loan until you either no longer live in the home as your principal residence or you fail to meet the obligations of the mortgage.
Learn more about how reverse mortgages work in their free consumer guide: Use Your Home to Stay at Home™.
- Myth #2: Most reverse mortgage borrowers use their loan funds for vacations and other fun things.
The truth is that most borrowers today use their loans for immediate needs, such as paying off their existing mortgage or other debts.
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- Myth #3: Reverse mortgages are too expensive.
Taking out any home loan can be costly because of origination fees, third-party closing charges (such as an appraisal, title search, and recording costs), and servicing fees. You can pay for most of these costs as part of the reverse mortgage loan. Borrowers who select a traditional HECM Standard reverse mortgage also must pay a hefty upfront FHA mortgage insurance premium that can be as much as 2% of the value of their home. But this insurance guarantees that you will receive the expected loan payments.
There are many factors to consider if you are thinking about using your home as a financial resource. Take a free Quick Check to explore the cost and benefits of tapping home equity through a loan or by selling your house at Home Equity Advisor.
- Myth #4: Reverse mortgages should only be used as a last resort.
It’s never a good idea to make a financial decision under stress. Waiting until a small issue becomes a big problem reduces your options.
If you wait until you are in a financial crisis, a little extra income each month probably won’t help. Reverse mortgages are best used as part of a sound financial plan, not as a crisis management tool.
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Find the answers to these other myths by reading the full post.
Myth #5: Most people who take out a reverse mortgage are elderly widows
Myth #6: A fixed rate reverse mortgage is always a good ide
Myth #7: Reverse mortgage counseling is a waste of time.
Myth #8: Most reverse mortgage borrowers who end up facing foreclosure were scammed.