Misconceptions about Reverse Mortgages
Some misconceptions about reverse mortgages include the following:
- Reverse mortgages are for desperate seniors, or for the house rich but cash poor.
- The home must be debt free before you can qualify.
- When the reverse mortgage comes due, the bank sells your home.
- The bank owns your home when you take out a reverse mortgage.
- Your heirs incur the debt when you’re gone.
None of these are accurate. As long as you have enough equity and can qualify based on the principle limit factors you can get a HECM. When you no longer live in the home then the loan comes due. If your beneficiaries want to keep the home they have the option of paying off the loan themselves by either refinancing or by other means. They can sell the home, pay off the loan balance and keep the difference.
The bank does not own your home, you do. It’s just like a regular mortgage but instead of you paying the mortgage payment the bank is paying you. You are accessing the equity without having to pay a monthly mortgage payment.
The HECM is a NON-RECOURSE loan. Your heirs are never responsible for the debt. When you no longer live in the home it is sold and the loan balance is paid off. Anything left over after the loan has been paid off is given to the beneficiaries. If the loan balance is more than the value of the home, the lender goes to HUD and gets reimbursed from the General Insurance Fund.