Reverse Mortgage Facts and Myths
Joe Friday in Dragnet said, “Just the Facts, Ma’am” and that’s what you’ll get from New Mexico Reverse Mortgage. My name is Kochenderfer — I carry a badge.
The badge I carry is really just a fancy pin to show that I’ve earned a Certified Reverse Mortgage Professional (or CRMP) designation. As a CRMP, I have had the opportunity to visit with many seniors and their advisors over the years and have come across many misconceptions that surface time and time again. Some of these are simply myths that been around for decades and more frustratingly is other misinformation that unfortunately comes from Loan Officers that claim to know all about Reverse Mortgages but only have limited experience and are giving wrong info. Based on these conversations with seniors, their children and their advisors, I have compiled a list of common Reverse Mortgage Myths and Facts.
Fact: This, by far, is the biggest misconception and if I only had a nickel…Today, 6 out of 10 people we meet initially have this wrong idea. That is actually an improvement from a few years ago when it was 8 out of 10 people. Think about it… More than half the folks we meet think that they are considering giving their home away! Nothing could be further from the truth. To be crystal clear… You are still on title and still own your home. Should you decide to move, you can sell the home. Otherwise, the home will likely pass to your heirs as you direct in your Will or Trust. Of course, if you’ve read this, then the ratio will continue to improve over time and in the next few years, I hope to squash this and other reverse mortgage fallacies.
Fact: About half of Reverse Mortgage transactions have an existing lien or mortgage that is paid off with the proceeds! Wouldn’t you like to be free from the burden of making a monthly mortgage payment for the rest of your life?
Fact: In actuality, the opposite is true! The Financial Planning Association (FPA) supports a Reverse Mortgage strategy for a senior’s retirement. They see it as a risk management tool to use in conjunction with a two-bucket investment strategy in order to help meet a retirement goal.
Fact: The U.S. Government has made many positive changes to the HECM program and closing costs may be a third of what they were just a few years ago. Other than the Counseling and the Appraisal costs, all other costs are typically rolled into the loan. Third party costs, such as title work, appraisals, etc. may vary by region or complexity, so call us for an estimate of your closing costs.
Fact: As is true with all homeowners with a mortgage, you must continue to pay for property taxes, homeowner’s insurance and maintenance.
Fact: You do NOT need to remove the home from your Revocable Living Trust in order to close on a Reverse Mortgage. Many lenders will tell you to remove it temporarily from the Trust while they work. That is lazy thinking by them and may put you (and your estate) in a hazardous position.
Fact: The “Reverse for Purchase” program has been around for years. However, most people (including many experienced real estate professionals) do not know how to buy a home with a Reverse Mortgage.
With no monthly payments, qualifying is straightforward. Rely on us as your local experts to learn more or to have us speak at your next function. Click here for more information.
Fact: The money produced by a Reverse Mortgage does NOT affect Social Security or Medicare. In fact, some seniors think outside the box and temporarily use a Reverse Mortgage Strategy to delay their Social Security benefits. This can significantly increase their government benefits in the future.
However, if you are on Medicaid, speak your Medicaid Counselor to learn if your benefits will be affected. A Reverse Mortgage can still be established and will change your life, but we need to set up the loan terms carefully and can work with the Medicaid Counselor or Administrator.
Fact: Many lenders won’t lend on Manufactured Homes. We do! With about half the homes in New Mexico classified as a Manufactured Home, it would be a shame if we didn’t.
The double-wide home must be on a permanent foundation and there are other guidelines that apply. We have an entire web page dedicated to the intricacies and recommend you check it out. Click here to open the Manufactured Homes in New Mexico page.
Fact: If your partner is in a nursing home or assisted living facility, you have concerns… emotional and financial. A Reverse Mortgage may ease the financial obligation incurred each month and help you sleep better at night.
Fact: Receiving money monthly is only one way you can receive money. You may also receive it in the form of a Line of Credit where funds are dispensed only when you want it and for the amount you want. Finally, you may receive funds in a “lump sum” distribution.
Or, if you can’t decide… You have the option to combine the 3 methods of disbursement!
Finally, one of the greatest features about a Reverse Mortgage, is that you have the ability to make changes at any time in the future. The program is incredibly flexible and you are able to manipulate the terms after closing whenever you want.
Fact: Generally, the proceeds are tax-free!
Think of it this way… You worked hard for many years to build equity in your home. The money you used to buy your home was already taxed. So, all you are doing is pulling your own money back out of the home.
Your situation may be unique or you may be receiving other benefits (such as Medicaid) that could be affected, so we always recommend checking with your tax, financial or benefits advisors. Rely on local experts to learn more or to have us speak at your next function.
Fact: Upon the death of the last person on the Reverse Mortgage, the home does pass on to whomever you’ve chosen to inherit the property. Your heir(s) will then decide if they want to refinance to keep the home or sell it and keep the proceeds.
Fact: As long as you are paying the property taxes, homeowners insurance, maintaining the home and living in it as your primary residence, there is no time limit as to how long you can stay in the home.
Fact: Rest easy… A Reverse Mortgage is a “non-recourse” loan and is insured by the government.
Simply, no one is responsible for any amount over the value of the home. If the bank takes a loss on the transaction, they submit a claim to HUD / FHA to be reimbursed.