Reverse mortgages have become a popular financial product for homeowners over the age of 62. Reverse mortgages allow homeowners to take advantage of the equity that they have built up in their home and begin receiving payments. Planning for retirement can be difficult, and a reverse mortgage is a great way to aid your retirement planning. In fact, one in three retirees get 90% or more of their monthly income from social security payments, according to a study by Boston College. A reverse mortgage can supplement social security income while still living in your home. Below are some common reverse mortgage facts and common misconceptions about reverse mortgages.
Reverse Mortgage Facts
These are reverse mortgage facts that apply to all people who take out a reverse mortgage loan:
- You do not have to pay back your reverse mortgage. Your reverse mortgage will not have to be paid back until you move away from the home or pass away.
- You get most of your home’s value. If you have paid off at least half of your mortgage, you are eligible to receive a large part of your home’s value from the reverse mortgage.
- You can get more money out of your reverse mortgage as you age. As you get older, the amount of money that you can borrow increases.
- You can never owe more than the value of your home. If your home is valued at $200,000 and the amount owed is $250,000, no one will owe the additional $50,000.
- You can always refinance. After a year and a half, you are able to refinance your reverse mortgage for a lower interest rate. This would allow you to tap into additional equity in your home and save money on interest costs.
Interested in a reverse mortgage? Find out how much you stand to receive with our reverse mortgage calculator.
Common Misconceptions About Reverse Mortgages
- “The lender can take your house while you are living in it.” In most reverse mortgages, the lender does not have the right to take away your house while you are living in it. You would still retain the title to your home.
- “Interest rates on reverse mortgages can be higher than interest rates for traditional mortgages.” Interest rates depend heavily on credit scores. By having and maintaining a good credit score, you are able to take advantage of better interest rates than a borrower with a worse credit score. A borrower with good credit can actually get better interest rates on a reverse mortgage than a borrower with poor credit can get on a traditional mortgage.
- “Reverse mortgages are loans of last resort”. While some people do use reverse mortgages as a last resort, they are not intended for this purpose. Rather, they are useful and important planning tool for homeowners over the age of 62.
- “Reverse mortgages are full of fees and additional costs”. Reverse mortgages come with a few fees, but the fees associated with reverse mortgages are governed by law. Legally, the fees charged cannot exceed 20% of the amount of money that you will receive.
- “You must own your home free and clear to qualify”. Contrary to popular belief, you do not need to have full ownership of your home to qualify for a reverse mortgage. You do need to have enough equity in the home to be able to pay off your first mortgage with the proceeds from the reverse mortgage. This helps borrowers free the money that would otherwise go to a monthly mortgage payment.
- “The lender owns your home”. Similar to a traditional forward mortgage, a reverse mortgage is secured by a lien on the property, so you retain the title to the home. As long as you continue to maintain the home, pay property taxes, and insurance, you will continue to own the home.