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Reverse Mortgage Misunderstandings

understanding reverse mortgages, truth about reverse mortgages, oregon reverse mortgage helpThere are many myths and misunderstandings about reverse mortgages. We cover myths about reverse mortgages on a separate page. On this page we are going to talk about misunderstandings. What’s the difference? Myths are stories or ideas passed around from person to person where facts are often distorted as the story gets passed along. Misunderstandings are a failure to understand something. Most of the misunderstandings about reverse mortgages are due to the way they are marketed and advertised.

Here are some very common misunderstandings about reverse mortgages:

Reverse Mortgages Are A Government Benefit – Reverse mortgages are not a government benefit. They are a mortgage loan. The majority of reverse mortgages are HECM’s, Home Equity Conversion Mortgage, which are insured by the FHA, Federal Housing Authority. They are not a stimulus program instituted by President Obama either.

Reverse Mortgages Allow You To Live In Your Home Forever – Nobody lives forever. Secondly there are a variety of things that can happen where you may not be able to live in the house any longer. If you do not pay your taxes, insurance, HOA dues or do not maintain your property, the lender can foreclose on your home. You may not have the funds or physical ability to maintain your home properly. In other words, a reverse mortgage does not guarantee that you will be able to live in the home forever.

Reverse Mortgage Funds Are Tax Free – This is true. The proceeds you receive are from the equity in your home and are not considered income. (Consult with a tax advisor.) Oftentimes people misunderstand that statement, thinking they no longer need to pay their taxes. You must continue to pay your taxes and insurance.

You Can Not Outlive A Reverse Mortgage –Forward or regular mortgages have a payback term which varies, but the most common terms are a 15 year or 30 year loan. There is no term with a reverse mortgage. In other words there is no set period as to when the loan needs to be paid back which means you cannot outlive the loan. What you need to be aware of is that you could outlive the proceeds from a reverse mortgage. This of course is determined by your spending habits and monetary needs. The one exception to this is if you choose the tenure loan option which guarantees a monthly payment to you for as long as you live in the home.

A Reverse Mortgage Requires No Mortgage Payment – There are no monthly mortgage payments required like there are with a traditional forward mortgage. That is because the payments, interest and mortgage insurance, are added to your loan balance every month. However you are still responsible for paying taxes, insurance and other expenses to maintain the property. A reverse mortgage is a loan and payments will eventually need to be made. The payments are made when the home is sold or refinanced. Or you could also pay off the balance with cash.

Reverse Mortgages Are Risk Free – There are risks associated with any mortgage. There are certain risks with a reverse mortgage that homeowners need to be aware of. If you do not pay taxes, insurance, HOA dues and maintain the property, you could lose the home to foreclosure. However, even if you did not have a reverse mortgage and you did not pay your taxes, you could still lose your home to foreclosure.