A Division of American Pacific Mortgage Corporation. NMLS 1850

Reverse Mortgage Myths

As Reverse Mortgages have increased in popularity, so have the myths about these unique loans. Most of us were raised to believe that if it is too good to be true, then it probably is. Here’s the exception: Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECMs), are federally insured loans that can benefit the senior that has earned equity. It’s money that you have already earned and it did not grow on a tree.

Let’s examine and debunk some very common Reverse Mortgage myths.

The fees are too high.
FALSE. Reverse Mortgage fees may be considered high but when compared with a traditional mortgage, their fees are similiar. The origination fee for a Reverse Mortgage is between $2,000 to $6,000 (2% of the mortgage). A traditional mortgage's origination fee is typically a little over 1% of the mortgage with no cap. This means a home that is $550,000 will cost close to $5,500 in origination fees while it will cost $6,000 for a reverse mortgage.
The bank becomes the owner of my home.
FALSE. A lot of seniors are worried that a Reverse Mortgage means the bank or lender now own the property. In fact, this is untrue. You retain legal ownership of the home. Even when you pass on, your estate owns the property. If the estate wishes to keep the home, they just have to pay off the balance on the Reverse Mortgage.
I have limited income and/or bad credit therefore I can't qualify for a Reverse Mortgage.
FALSE. While you may not qualify for a traditional mortgage with no or limited income, Reverse Mortgages do not have any income qualification guidelines. The equity in your house and your age is the criteria. Lenders want to see that you can pay your property taxes and insurance and normal upkeep on the home.
I already have a mortgage, so I don't qualify for a Reverse Mortgage.
FALSE. Many seniors believe that if they have a mortgage, they do not qualify at all. Reverse Mortgage loans can be used to pay off existing mortgages if a borrower has enough equity in their home already. The actual figure will vary by lenders but most lenders will want you to have enough equity to borrow against. The actual amount you can borrow will depend on the equity available, rates and your age. The older you are, the more you will be able to borrow. For example, on a $250,000 property, at age 62, you will be able to borrow about $110,000 while at age 76, you may be able to borrow as much as $150,000.
I have to pay taxes on the Reverse Mortgage payments.
FALSE. The money is yours already so you do not owe anything to the IRS. Consult with a financial advisor to make sure. Generally, since you are tapping into your own home equity, you will not pay any taxes on the payments.
Most Reverse Mortgage borrowers use their loan funds for vacations and other fun things.
FALSE. The truth is that most borrowers today use their loans for immediate needs, such as paying off their existing mortgage or other high interest debts. There are however no restrictions. Cash proceeds from the Reverse Mortgage can be used for virtually any purpose.
Reverse Mortgage lenders take advantage of seniors.
FALSE. Seniors who have been victims of Reverse Mortgage lending schemes are extreme exceptions and typically victims of unsavory lenders. As a consumer, you should only work with lenders who are Better Business Bureau and National Reverse Mortgage Lenders Association (NRMLA) members and adhere to those organizations’ strict Code of Ethics and Standards for Trust.
My children will be responsible for the repayment of the loan.
FALSE. Reverse Mortgages are non-recourse loans. That means that if the property is sold to pay off the loan when you pass away or decide to leave the home for other reasons, there will be no mortgage debt for your family and heirs to repay. The maximum amount owed is the current market value of the house. If your heirs want to keep the home, they would pay the balance in-full to the Reverse Mortgage lender.

If you have other questions please contact us and together we'll go over each of your concerns to see if a Reverse Mortgage is right for you.

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A Reverse Mortgage is sometimes the best option to move forward to financial freedom. About 33% of homeowners who consider a Reverse Mortgage will use it to supplement their monthly income. However you decide to use your proceeds, you deserve to live in your California home longer. Contact me now and stop worrying where next month's income will come from.