Myths and Realities of a Reverse Mortgage

A Home Equity Conversion Mortgage (HECM), more commonly known as a reverse mortgage, is a loan insured by the Federal Housing Administration (FHA) which enables seniors to convert equity into tax-free funds or monthly cash flow, eliminate payments on their current mortgage, or purchase a home without monthly mortgage payments.

However, there are a lot of questions and misconceptions about reverse mortgages. Here are some common myths - and the associated realities - which are commonly associated with a HECM:

#1

Myth: The bank owns the home.
Reality: The borrower will retain title and ownership of the home.


#2

Myth: The home must be free and clear of any existing mortgage.
Reality: Many borrowers use a reverse mortgage to pay off an existing mortgage and eliminate monthly mortgage payments.¹


#3

Myth: The borrower needs to pay taxes on reverse mortgage funds.
Reality: Reverse mortgage loan proceeds are tax-free as it is not considered income.²


#4

Myth: The borrower is restricted on how to use the proceeds.
Reality: Once any existing mortgage or lien has been paid off, the net loan proceeds can be used for any reason.


#5

Myth: Only poor people need reverse mortgages.
Reality: Many affluent senior borrowers are using reverse mortgage loans as part of their financial and estate planning.²


¹ You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements.
² Consult a tax or financial advisor.


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Brian Young
For more information about whether or not a HECM is right for you, contact our Reverse Mortgage Loan Officer, Brian Young.


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