Reverse Mortgage is a very popular option among seniors as they can fulfill their financial obligations using the loan advances offered against their property. But along with its growing popularity, a number of myths and misconceptions have associated with this kind of a mortgage.    

Some of the common myths and misconceptions related to a reverse mortgage are mentioned here along with the true facts.

Myth 1:

Borrowers may lose their homes

Many seniors get worried as to what will happen to their home after they have opted for a reverse mortgage. But the title to the property remains in the name of the borrower. The reverse mortgage only creates a lien on the property like any other home loan. Just like in any other home loan, a reverse mortgage borrower has to pay the closing costs and repay the entire loan amount along with the accrued interest.

Myth 2:

Reverse Mortgages are not guaranteed by the government

It’s a common misconception that reverse mortgages are not guaranteed by the Federal Government. But the fact remains that the 2 percent insurance premium paid along with this loan acts as the guarantee for the reverse mortgage offered by the FHA. In other words, the FHA insures this kind of loan. There are also the proprietary reverse mortgages that are guaranteed by private lenders.

Myth 3:

These home loans are costlier

Many people believe that Reverse Mortgages are expensive compared to other conventional home loans. But the closing cost for this home loan is only 1% higher than that of other conventional mortgages. Moreover, reverse mortgage lenders can charge no more than 2% of the loan amount as origination fees. The payment on this mortgage is also influenced by the interest rate which is based on the 1 year US Treasury Note instead of the Prime Rate. This also helps to minimize the cost of managing this loan.

Myth 4:

You should be a credit worthy borrower

Borrowers are of the opinion that one should have a very good credit score in order to qualify for a reverse mortgage. But this isn’t true. Since no repayment is required as long as the surviving borrower remains in the home, therefore there are no income or credit requirements.

Myth 5:

You may not pay off other debts to qualify

Most borrowers feel that they will have to clear existing debts against their properties in order to qualify for the reverse mortgage. But the debts can also be paid off from the loan advances obtained from the mortgage.

Myth 6:

Reverse Mortgages are taxable

It is a common misconception that reverse mortgage loan advances are taxable. But this isn’t the fact as these loan advances are not considered as income earned by the borrower.

With a reverse mortgage, seniors can get a home of their own or go for home repairs using the loan advances. But in order to make this an effective financing option, one should be aware of the misconceptions associated with it. Only then can he benefit by considering a reverse mortgage.