Dispelling the Ever-Present Myths of Reverse Mortgages

To all:

I am always scouring financial news, mortgage reports, senior citizen need articles to bring the best, and most updated information to this blog. I hope to encourage seniors who can make good use of a reverse mortgage, and to ward off others, who may benefit from other financial solutions.

Today I saw the following article from the business section of the Lubbock Avalanche-Journal, and thought it would be good to share the best of it with you.

Some of these myths, such as the bank taking a seniors home or selling it, actually go back over 25 years to the early days when reverse mortgages were small private loans. But since HUD/FHA and Congress made it a government regulated loan in 1987, senior homeowneres are protected from this.

Another ongoing myth is that adult children do not want their parents to "mortgage up" their inheritance.

Actually, a review of the literature shows that most adult children want their parents to be independent as long as possible, enjoy their retirement years and use their assets for their own enjoyment, or to defray any heavy health care costs.

Stay tuned to this website for more information regarding the uses and dynamics of parents-adult children and reverse mortgages.I hope you find today's article helpful and informative.

And, enjoy today to the fullest!

Gloria


BUSINESS FOCUS
Lubbock Avalanche-Journa
lMonday, May 19, 2008
Story last updated at 5/19/2008 - 1:58 am 05/19/08

As reverse mortgages have increased in popularity, so have the myths about these unique loans. While there's better information available today, many seniors and their adult children who are exploring reverse mortgages still encounter a host of misconceptions. Here's a look at common myths and the facts:

1. The bank takes the house or the borrower can lose the house.

With a reverse mortgage, the borrower retains title throughout the life of thereverse mortgage. The borrower cannot, as a result of the reverse mortgage, beforced out of the home as long as property taxes and insurance are paid and thehome is maintained in reasonable living condition. Once the borrower permanentlymoves out of the home, the loan must be repaid. Most properties secured byreverse mortgages still have equity when a maturity event occurs; the borroweror heirs can opt to sell the home to repay the loan and preserve this equity forthe benefit of the borrower or his/her estate.

2. The home must be paid off or be debt-free to qualify.

Reverse mortgages convert home equity into cash. As long as there is sufficientequity in the property, the homeowner may be eligible for a reverse mortgage. Infact, many seniors use a reverse mortgage to pay off an existing mortgage inorder to eliminate a required monthly mortgage payment.

3. When a reverse mortgage becomes due, the bank sells the home.

The borrower is in control of the home and retains title, not the bank orlender. While it's common for the borrower or heirs to sell the home to repaythe loan, it's a decision they make. They might instead refinance the home torepay the loan.

4. It's cheaper to move to a smaller house.

Seniors need to analyze their costs carefully before making this assumption.Selling a home and moving can be expensive. The typical real estate commissionof 6 percent, combined with moving expenses, can make finding a new home aserious financial undertaking.

5. Children want the home or don't feel comfortable with their parents obtaining a reverse mortgage.

Seniors should talk with their family about reverse mortgages. Often adultchildren are pleased their parents have a financial solution available to helpthem live more independently and financially secure.

6. The borrower could owe more than the house is worth.

Due to built-in safeguards, the borrower or his estate can never owe more thanthe value of the home upon repayment. In addition, the HECM product are insuredby the Federal Housing Administration.

7. Reverse mortgage processes will impact Social Security and Medicare benefits.

Generally, a reverse mortgage will not affect regular Social Security paymentsor Medicare benefits, although some Federal Supplemental Security Income ofstate programs may be impacted. Borrowers should speak with a financial advisoror the appropriate agencies.

8. There are restrictions on how the money is used.

Actually, there are no restrictions, and proceeds from the reverse mortgage canbe used for any purpose - travel, to pay off debt, make purchases or just livemore comfortably.

9. Once proceeds are received, taxes will need to be paid.

Since the proceeds are already the borrower's money, they are tax-free*.

10. Reverse mortgages are only for seniors in need or for the "house rich, cash poor."

Reverse mortgages are excellent financial planning tools that have been used byhomeowners for all walks of life to enhance their retirement years.

Burl D. Greaves is a Reverse Mortgage Specialist for Financial Freedom Senior Funding Corporation.

*Consult your tax advisor.