Reverse mortgages are financial products that allow homeowners who are at least 62 years old to take advantage of their home equity. Basically, a part of the home equity is given over to the reverse mortgage lender, who pays the homeowner in tax-free income. The topic of reverse mortgages is surrounded by a lot of controversy, which can easily cause confusion amongst consumers. With all of the contradicting statements and claims about reverse mortgages, it can be hard to make a sound decision on reverse mortgages. This article will uncover some of the myths that are commonly associated with reverse mortgages.
Reverse mortgages are not always expensive
People often try to avoid getting reverse mortgages, because they think that the upfront costs are excessively high. In truth, reverse mortgages can cost much less in comparison to mortgages, home equity loans, and other loans that have monthly charges. Also, the payments for reverse mortgages do not have to be paid until the homeowner sells the property, moves, or passes away. Reverse mortgage origination fees have also been limited by the Housing and Economic Reform Act of 2008 (HERA). The act states that claims of up to $200,000 are subject to 2% origination fees. Any amount of the claim that exceed $200,000 is charged an extra 1% on the origination fee.
Homeowners always retain ownership with reverse mortgages
Usually, when homeowners get mortgages or home equity loans, they risk losing their homes to their lenders. If homeowners are unable to pay bills on mortgages or home equity loans, the lender may take ownership of the home for compensation. Reverse mortgages are not modeled like home equity loans and mortgages. Even if the home equity depreciates after getting reverse mortgages, homeowners retain ownership of their home for as long as the property is still under their name and they still live in the home. Reverse mortgages are also a form of non-recourse financing, meaning the costs of the reverse mortgage can never exceed the value of the home.
Reverse mortgages can be used to finance anything
Most reverse mortgage lenders require homeowners to pay off their mortgages in order to get a reverse mortgage. While paying off mortgage can be quite expensive, homeowners can use the reverse mortgage to pay for existing mortgages and debts on their homes. Any amount in excess of the debt and mortgage payments will go directly to the homeowner as tax-free income. Reverse mortgages claims can be used for anything, even for buying another property.