Myths: Reverse Mortgages in Bucks County, PA

Misconceptions abound when it comes to Reverse Mortgages. Although understanding is increasing quickly amongst eligible seniors, there are over 10,000 people turning 62 each day that will need to get "caught up" on knowledge.

Myths:
1) The bank will take my house. With a reverse mortgage the borrower(s) retain title to the home similar to a forward mortgage. The borrower(s) can never be force out of their home as long as the property taxes, insurance are paid and the home is maintained to basic health and safety guidelines as defined by HUD.

2) The home must be owned free and clear. As long as the proceeds from a reverse mortgage cover any existing liens on the home (including 1st and 2nd mortgages, tax liens, and judgements), the candidate will qualify. According to a recent AARP and HUD co-sponsored study in 2008, approximately 50% of reverse mortgage borrowers used a reverse mortgage to pay off their existing mortgages and free up monthly cash flow.

3) The bank will sell my home when the loan becomes due. The borrower is always in control of the home and retains title (not the bank or the lender). It is most common for a family to sell the home because the adult children and families tend to be settled elsewhere - however, this is in no way a requirement. Many seniors plan for their estates to satisfy the reverse mortgage balance in the event that the children will be retaining the home while others PLAN for the home to cover the proceeds from the start.

4) It is cheaper to move to a smaller house. This strategy might be right for some, however, when factoring in real estate commissions, new closing costs and the cost of moving etc, it might not make as much sense as it initially appears. Individuals interested in downsizing, should speak with a realtor AND a mortgage professional about the options available to them and what the total costs would be prior to making a decision.

5) Children want the home and are not comfortable with a reverse mortgage. I encourage every senior to seek the advice of a PROPERLY EDUCATED or LICENSED individual. Due to the common misconceptions on the product, the "knee-jerk" reaction can be misplaced and misunderstood. I can speak for myself and many other adult children when I say "My mother and father DESERVE to live in their home and DESERVE to use it for all it is worth".

6) The borrower will owe more than the home is worth. Two of the great safeguards for reverse mortgage are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment. In addition, HECM products are insured bu the FHA, an arm of the US Department of Housing and Urban Development.

7) Reverse Mortgage proceeds will impact Social Security and Medicare benefits. A reverse mortgage will not impact Social Security Retirement benefits or Medicare. They can impact some Federal Supplemental Security Income (SSI) or state-administered programs like Medicaid. I recommend that anyone looking in to a reverse with further questions on this contact the appropriate governmental agencies.

8) These are restrictions on how the money is used. Actually, there are no restrictions. The cash proceeds from the reverse mortgage can be used for any purpose. Paying off debts, paying medical expenses, helping their children and traveling are just some of the way proceeds can be spent.

9) Once the proceeds are received, taxes will need to be paid. Proceeds from a reverse mortgage are already your money...they are just in the form of equity. Since they are not income, you do not need to pay taxes on them. I suggest you contact a financial planner just to be certain.

10) Reverse Mortgages are only for seniors in need, or for the 'house rich & cash poor'. The reverse mortgage is an excellent financial planning tool when understood. I personally have closed reverse mortgages on homes as small as $90,000 to estates as large as $4,000,000. Using a reverse mortgage for estate planning and legacy planning in conjunction with advice from a financial planner can be a great strategy to increase overall estate value.