Consider this, you’ve come to your target retirement age, have raised your children, paid for college and weddings, worked tirelessly, saved endlessly and now you’re looking forward to finally kicking back and enjoying life in your golden years. Except there’s a problem: you don’t have enough savings and retirement income to support the lifestyle you want to live. What are you going to do?
Well, you can keep working, sell a bunch of your stuff, or you could consider a reverse mortgage. Yes, you heard it, a reverse mortgage. The first reverse mortgage was closed in 1989 and since then there has been lots of talk about what an awful idea it is. Why would someone give away their home to a bank? Well, that is not what it is! Put simply, a reverse mortgage is a loan based on your age and the current equity in your home. So, if you own a home worth $500,000 you could get cash for your equity up to 60% of the value of your home, which in this example would be $300,000. Then, when the home is sold, by you or your heirs, $300,000 would be paid back to the bank. Of course, there are lots of other details, but you get the idea.
As I’ve talked to clients about this option, I’ve heard lots of myths about reverse mortgages that scare them and are simply not true. It’s a great option for many Americans of retirement age that have equity in their homes and not enough savings and income to sustain their retirement.
To help you get educated on this option I’m going to discuss below a few of the most popular myths I hear from clients and share with you the truth so that you can determine if a reverse mortgage might be something for you to consider. Please let me know if you have more questions, I’d love to help!
#1 Myth: I can’t get a Reverse Mortgage if I already have a mortgage on my home.
Not true. You most certainly can get a Reverse Mortgage on your home even if you already have a mortgage. What you will do is simply pay-off the current mortgage with the proceeds of the Reverse Mortgage or other savings. You’ll then be free of mortgage payments!
#2 Myth: I own my home now. I will have to go back to making monthly mortgage payments!
Not true. You will not be making monthly mortgage payments. The loan is paid back at the sale of the home, not all along the way like a traditional mortgage. However, just as any homeowner, you will still have to pay your property taxes, insurance, and upkeep of your home.
#3 Myth: I don’t want to leave my heirs with a huge loan to pay back.
Your reverse mortgage is just that, YOUR reverse mortgage. A reverse mortgage cannot be passed down to your heirs, it stays with your home and is paid-in-full with the proceeds from the sale of your home. All the appreciation in the value of your home can be passed down to your heirs. And suppose your heirs want to buy your home, they can work with the loan servicer to buy the home.
#4 Myth: I’m not in great health and my credit score is bad. I’ll never qualify!
Reverse mortgages do not have the qualification requirements of a traditional mortgage. In fact, there are currently no income/debt, credit score, or health requirements because your ability to pay back the loan is not a consideration with a reverse mortgage. You have no payments! The two main factors in a Reverse Mortgage are the borrower’s age and the equity they have in the property (you will be asked for income information that the government requires for reporting purposes but it will not be used to ‘qualify’ you for the Reverse Mortgage).
#5 Myth: I don’t want a bank telling me when I can and cannot sell my house!
You may live in your home as long (or short!) as you choose. If and when you decide to sell your home and no longer occupy the home as your primary residence, the loan will be due.
I imagine you may have some other questions and that’s great! Just give me a shout, I’m happy to explore all the details. The modern Reverse Mortgage is really a great option for so many. It’s worth learning more about so you can decide if it’s the right option for you.
**Please note** Some of the guidelines for reverse mortgage will be changing on October 1st. It will still be the same great product but may affect how much cash out you get. I will be publishing a detailed post once we’ve digested all the changes. **