 Reverse Mortgages MYTHS...exposedThursday, October 8, 2009 - Article by: Russell Felter -
A home must be paid off or it must be free of all debt to qualify for a reverse mortgage. Reverse mortgages convert a portion of home equity into cash and can also be used to purchase a primary residence. If there is sufficient equity in the property, the homeowner may be eligible for a reverse mortgage. Today, many seniors (minimum age 62) use a reverse mortgage to pay off an existing mortgage and eliminate the burden of monthly mortgage payments. A bank will sell the home when a reverse mortgage becomes due. The borrower retains title, not the bank or lender. So while it's common for the borrower or the heirs to sell the home to repay the loan, it's a decision the borrower or his heirs make. The borrower or the heirs might also refinance the home in order to repay the loan. A bank or lender will take title (ownership). With a reverse mortgage, the borrower retains full title to the home throughout the life of the reverse mortgage. The borrower cannot, as a result of the reverse mortgage, be forced out of his or her home as long as property taxes and insurance are paid and the home is maintained in reasonable living condition. Once the home is no longer the principle residence or the last borrower permanently moves out of the home, the loan must be repaid. The borrower or their estate could end up owing more than the home is worth. Reverse mortgages are designed so that the borrower or their estate can never owe more than the value of the home upon repayment. This is often referred to as non-recourse. In addition, the HECM program is insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). There are serious restrictions on how the money is used. The proceeds from the reverse mortgage can be used for any legal purpose and the proceeds are non-income (tax-free). Seniors use reverse mortgages to do many things, including travel, pay off debts, assist kids and grandkids, purchase luxury items or vehicles...or just live more comfortably. Reverse mortgage proceeds will adversely impact Social Security and Medicare benefits. A reverse mortgage will generally not affect regular Social Security payments or Medicare benefits. However, based upon the borrower's situation, a reverse mortgage could affect benefits received through the Federal Supplemental Security Income program, or a state-administered program such as Medicaid. |
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