Reverse Mortgage – Myth vs. Truth

Reverse Mortgage Myth:  The Reverse Mortgage Is a very dangerous loan with dangerous consequences
Actually, it is quite the opposite.  Much of this myth was fueled from the Reverse Mortgage practices during the 1980’s.  During that time this loan program was not being monitored by HUD and was not insured by the Federal Housing Administration (FHA).  This alone left any senior taking out a reverse mortgage absolutely vulnerable.  Today this loan program is fully monitored by HUD and strongly regulated and insured by FHA.  This protects the homeowner’s right to their home and equity leaving them and their heirs safe, secure and with many more options.

Reverse Mortgage Myth: The IRS Can Tax My Reverse Mortgage Income
The proceeds from a reverse mortgage can be taken in several ways–as a lump sum, payments for life (tenure), payments for a specific number of years (term), a line of credit, or a combination of these. But which options create an income tax burden? Answer: none of them!

Reverse Mortgage Truth: Income from Reverse Mortgages Isn’t Taxable
This is money that is already yours in the form of equity.  That’s because technically a reverse mortgage payment isn’t really income–it’s the proceeds from a loan and will be repaid someday. So income from your reverse mortgage goes further than income from other sources. For example, if you take a part-time job to supplement your retirement income and you are in a 33% tax bracket, $2,000 a month becomes $1,340 a month. But $2,000 a month from a reverse mortgage is not taxable, and you get the full benefit of your money. So by all means, take that part-time job if it fulfills you. Just keep in mind that a reverse mortgage can provide more money with less effort.

Reverse Mortgage Myth: I Need Income and Good Credit to Qualify
It’s tough being retired and on a fixed income. Many don’t have enough income to qualify for a home equity loan, and the economy may have battered their credit ratings as well. That’s no problem with a reverse mortgage.

Reverse Mortgage Truth: You Can Qualify for a Reverse Mortgage with Bad Credit and No Income
Because you don’t have to make mortgage payments, your credit history and income are irrelevant to a reverse mortgage lender. And borrowers with bad credit don’t pay higher interest or fees than those with perfect credit.  In fact, you can even be behind in mortgage payments and in pre-foreclosure.

Reverse Mortgage Myth: A Reverse Mortgage Can Make Me Ineligible for Government Programs
Seniors getting needs-based assistance such as Medicaid may be concerned that the extra income from a reverse mortgage could make them ineligible. That’s not generally the case.

Reverse Mortgage Truth: Reverse Mortgages Don’t Have to Affect Government Programs
Regular income from reverse mortgages isn’t technically income, so it doesn’t make you ineligible for government programs. However, taking your proceeds in a lump sum–if you don’t spend it all immediately–can increase your assets to the point where you wouldn’t qualify for certain programs. Ask your reverse mortgage counselor about the best way to take your proceeds if this is a concern.

Reverse Mortgage Myth: I Could Get Evicted from My Home
Seniors have visions of running through all of their home equity and then being kicked out of their homes. In fact, a reverse mortgage is about the surest way of remaining in your home. You don’t have to make payments, and all you have to do is maintain the property and pay your property taxes and insurance.

Reverse Mortgage Truth: You Can Stay in Your Home as Long as You Like
Even if you select a payments-for-life (tenure) option and your loan balance exceeds your property’s value, you cannot be evicted, and you don’t have to repay more than the home’s value.

Final Thoughts:  Reverse mortgages aren’t for everyone, but they are optimal solutions for many. In fact, CNNMoney.com suggests that seniors look into reverse mortgages if they have credit or cash flow problems. A survey by AARP also indicates that over 90% of seniors who took out reverse mortgages were glad they did. Maybe you could be one of them.

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