Updated June 6, 2011

There are many reverse mortgage myths (reversible mortgage) in today’s market fueled by stories of the reverse mortgages of the past.  The most common misconception is that you will have to give up ownership of your home to the reverse mortgage lender upon passing away, or that with time you may be forced to move from the home or start making payments on the money borrowed.  It’s been decades since those types of reverse mortgages were utilized, but that past still haunts seniors today who fear the unknown about loans.  The fact is that reverse mortgages are a safe and secure way to improve your lifestyle without ever giving up the ownership or equity in your home.

There are many reverse mortgage benefits, and the drawbacks are few.  However, full preparation and planning is a must as you decide what is right for you.  The reverse mortgage pros include:

• Tax free money that does not affect Social Security or Medicare benefits.  The money received from a reverse mortgage loan is money received as a loan via your home’s equity and is not considered taxable income.  As a result you get the full benefit of these funds without giving any part of them to Uncle Sam. Medicaid benefits could be affected however for some types of reverse mortgages.
• Eliminate mortgage payments without giving up home ownership or its associated privileges.  A reverse mortgage loan enables senior homeowners, ages 62 and older to convert part of their home equity into tax-free income – without having to sell their home, give up title to it, or make required monthly mortgage payments.  FHA insures the borrower via the HECM reverse mortgage program that they will never lose home ownership or be forced to make payments or move from the home as long as you choose to live there.  As a result the title to your home stays in your name until you chose to move or you pass away.  At that time the mortgage and accrued interest is paid in full and the remaining equity is disbursed to you and/or your heirs.  Because there are no payments associated with these loans, the program only allows a certain percentage of the home’s value to be borrowed, thereby ensuring there is always equity in the home.  The percentage you may borrow is dependent on your age and the location of the property.
• Keep the ability to leave the home and equity to your children and/or heirs.  Should you pass away while living in the home you can still pass on the ownership of the home to your children or heirs.  They may choose to keep the home or sell it.  If they keep the home they will need pay the reverse mortgage balance in full – by way of a refinance or cash; or, if they chose to sell the home they claim all remaining equity once the reverse mortgage and its accrued interest is paid in full.  In either event there is an allotted 6 month period for this process. 
• Freedom and flexibility to live an improved independent lifestyle.  A reverse mortgage allows seniors to tap into money they’ve earned in the form of home equity to achieve financial freedom, adding another arrow in the retirement planning quiver. The money you get from the reverse mortgage is yours to use as you please.  Do you have medical bills? Do you need to upgrade your home to fit physical needs? Maybe you just want to finally be able to travel and have more security – the decision is yours.  With these funds you may live a better lifestyle without giving up your home ownership. 
• Purchase a home using a reverse mortgage.  Should you choose to move now, or sell and move later you may use a reverse mortgage purchase loan to buy your new home.  Once again you will have no mortgage payment as long as you live in your new home.  The only stipulation is that you can only have one reverse mortgage at a time, and it must be on your primary dwelling.
• No credit or income requirements to qualify.  Reverse mortgages are underwritten and approved based on your age, the loan to value- percentage of equity in your home- and the location of your home.  Because you have no payment requirements on the home, credit and income figures are not used to qualify or disqualify you from the loan.
• Protection from Market Volatility.  Once you sell your home or pass away you and/or your estate retains any remaining equity after the reverse mortgage and its accrued interest is paid in full.  However, should market conditions worsen, or should any event occur leaving the balance of the reverse mortgage at a greater amount than its value, neither you nor your heirs will be required to pay the shortfall.  FHA insurance protects lenders from these losses and guarantees that you will never be displaced from the home, and will never have to make a regular mortgage payment on that loan.  As a result, you can borrow against your home now without the risk of losing it. 

Sound too good to be true?  There are reverse mortgage drawbacks as well.  The reverse mortgage cons include:   

• Closing costs.  The closing costs on reverse mortgages are generally speaking a bit higher than traditional mortgages.  These costs include paying the upfront FHA insurance premium that protects from loss of home ownership and market volatility, among other things.  However with the exception of the appraisal, these closing costs are not charged out of pocket, but are reduced from the loan proceeds upon closing.  The appraisal fee can usually be refunded to you at closing. You can use our reverse mortgage calculator to get a quote on how much your closing costs would be.
• Reduced equity in the home.  Once you borrow money against your home equity a lien is placed against your home.  That lien must be paid off once you sell the home or pass away.  As a result there will be less equity proceeds going to you or your heirs upon selling the home because the reverse mortgage balance borrowed originally, plus its accrued interest must be paid off at that time.  However should this balance be greater than the value of the home you will not be obligated to pay the shortfall. (see video)
• Loan Responsibilities. You must adhere to loan responsibilities as agreed upon at closing.  The primary responsibilities are:  reside in the home as your primary residence, pay for property charges such as taxes, hazard insurance and homeowner association dues and maintain the property in reasonable condition.  Failure to meet these responsibilities may result in the loan becoming due and payable.

Other reverse mortgage pros and cons exists, Your Reverse My Mortgage adviser can help answer all your questions, as well as calculate what you qualify for.  Call 855-4REVERS(e) for more information.  855-473-8377.  You may also visit Utah Reverse Mortgage Loan for additional information.