Reverse Mortgages for Boomers and Seniors: 7 Misconceptions Debunked

By Tony Antonopoulos, Reverse Mortgage Coach

There is very little argument that reverse mortgages are helping older Americans achieve greater financial security.

Ask any reverse mortgage borrower and they will most likely tell you they were treated professionally by their reverse mortgage specialist and that their reverse mortgage has given them peace of mind notwithstanding the financial independence it affords. So why does the industry suffer from so much resistance.

Let’s first tell you what a reverse mortgage is.

The National Association of Reverse Mortgage Lenders (NRMLA), who’s job it is to educate consumers in addition to being the national voice for lenders and investors, says “A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.”

I like the definition from the National Center for Home Equity Conversion, “A loan against your home that requires no repayment for a long as you live there.”

Too good to be true?

That’s my kind of definition. Frank, simple, and forthright. If more persons were to recognize this maybe we could get past some of the myths. I’m often told it sounds “too good to be true” so it must be a scam. I say, no it’s not “too good to be true” – it’s a mortgage! It will be repaid.

Here are some other misconceptions that fuel the resistance:

Myth #1 – I call this the big one!
The bank will own my home.

Reality
You and/or your spouse will always retain title to your home. Much like a traditional mortgage your home serves as security against the debt. The bank will never own your home. Pay your property taxes, keep your insurance current, and mow the lawn! – And the bank will never take your home with a reverse mortgage.

Myth # 2 – “What about my kids!”
My children/heirs will get stuck with repaying a loan balance greater than the value of the home.

Reality
Reverse mortgages, as mandated by the Department of Housing and Urban Development (HUD), are non-recourse loans – you can never owe more than what the house can be sold for.

Myth #3 – “The IRS is at it again!”
The reverse mortgage proceeds I receive are taxable.

Reality
The IRS does not consider loan advances to be income and thus the money you receive is tax-free. Just like advances from a traditional home equity line of credit are not taxable neither are the proceeds from a reverse mortgage.

Myth #4 – “It’s the first of the month, where’s my check!”
A reverse mortgage will affect my Social Security and Medicare benefits.

Reality
Reverse Mortgages will not affect your Social Security and Medicare benefits because these are federal entitlement programs offered to everyone of a certain age. Please know that the needs based programs such as Supplementary Security Income (SSI) and Medicaid may be affected by reverse mortgage proceeds. You should consult with your attorney or accountant for more information.

Myth #5 – “I’m bankrupt!”
I don’t qualify for a reverse mortgage because I have poor credit.
Reality
Reverse mortgages do not have credit, income, or asset requirements nor is your health a factor.

Myth #6 – “I owe, I owe.”
Can I qualify for a reverse mortgage if I have a mortgage on my home?

Reality
Your home doesn’t need to be mortgage free to qualify. Of course, it helps to have more equity in your home but many seniors take out a reverse mortgage for the purpose of paying a current mortgage in order to free up cash flow.

Myth # 7 – “It doesn’t fit with my situation.”
Reverse mortgages are loans of “last resort” or for seniors who are cash flow poor, and house rich.

Reality
Yes, it’s true that a large portion of reverse mortgage borrowers are needs-based but more and more seniors are recognizing that reverse mortgages can play an important role in their retirement and estate plans. The fastest growing segment of the market is jumbo reverse mortgages – loans with homes valued at more than $750,000!

And for Pete’s sake, I think “last resort” is foreclosure! You got to look at reverse mortgages as a viable option that let’s you stay in your home.

In short, a reverse mortgage is right for some seniors, not all.

Let’s hope more information will help break down the barriers and at least allow seniors to consider reverse mortgages as an option. <<

Tony Antonopoulos is a Certified Senior Advisor (CSA)® and Reverse Mortgage Coach for Northern Mortgage Services, LLC a FHA/HUD approved correspondent lender.
He can be reached at 877-959-7878 or anthony@northernloans.com. For more information regarding reverse mortgages – www.reversemortgagecorner.com.