NCOA Debunks 8 Reverse Mortgage Myths

Most every reverse mortgage professional has confronted common myths about the loan types. This week the National Council on Aging released its own list of reverse mortgage myths and set out to debunk them. 

Among the myths: Reverse mortgages are too expensive, most borrowers use their funds for vacations or other fun things, and reverse mortgages should only be used as a last resort. Addressing these issues and five others, NCOA explains that while reverse mortgages have become more popular in recent years, many misperceptions have sprung up as well. 

NCOA writes

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…Myth #2: Most reverse mortgage borrowers use their loan funds for vacations and other fun things.
The truth is that most borrowers today use their loans for immediate needs, such as paying off their existing mortgage or other debts.

About 33% of homeowners who consider these loans want to supplement their monthly income, so they can afford to continue living in their own home longer.

Myth #3: Reverse mortgages are too expensive.

Taking out any home loan can be costly because of origination fees, third-party closing charges (such as an appraisal, title search, and recording costs), and servicing fees. You can pay for most of these costs as part of the reverse mortgage loan.

Borrowers who select a traditional HECM Standard reverse mortgage also must pay a hefty upfront FHA mortgage insurance premium that can be as much as 2% of the value of their home. But this insurance guarantees that you will receive the expected loan payments.

In addition, you (or your heirs) don’t have to repay more than the value of the home, even if the amount due is greater than the appraised value.

The new SAVER HECM reverse mortgage is less expensive because it all but eliminates the upfront insurance fee. However, borrowers get a smaller loan amount with a HECM Saver than with a Standard loan….

View the entire list of reverse mortgage myths debunked by NCOA. 

Written by Elizabeth Ecker

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  • Overall it was good to see NCOA moving past the standard “myth”
    list.  There were a number of problems though.  To say the following
    is factually incorrect:  “Also known as Home Equity Conversion
    Mortgages (HECMs), reverse mortgages have become increasingly popular in recent
    years.”  While it is correct to say that HECMs are also known as
    reverse mortgages, the quotation says it exactly the opposite and wrong way
    which takes away from the positive luster of the article.

    To say the following is a myth is also inaccurate and a
    misstatement of fact:  “A
    reverse mortgage works the same as any other type of home loan.”
     HECMs do in fact work like all other mortgages but they also allow a non monthly
    payment option and other unusual features.  But if the mortgage is not
    paid when due and payable like any other mortgage it goes into default and
    could eventually end up in foreclosure.

    NCOA has finally
    clarified what it means by saying a HECM should not be a loan of last resort
    when it says:  “It’s never a good idea to make a financial
    decision under stress. Waiting until a small issue becomes a big problem
    reduces your options.  If you wait until
    you are in a financial crisis, a little extra income each month probably won’t
    help. Reverse mortgages are best used as part of a sound financial plan,
    not as a crisis management tool.”

     

    To NCOA “a loan of last resort” has nothing to do
    with the priority of financial products to be considered but rather WHEN the
    products are considered.  The article does not change the NCOA position
    that a HECM is for less affluent seniors who are cash poor with few other
    assets than their home.   Here NCOA is simply advising the less affluent not
    to wait until they are desperate and there are fewer choices available to
    consider.

     

    To many of us, a HECM is a financial tool which should be
    considered by seniors in a wide range of financial situations including the
    cash rich (for example, as a standby line of credit).  Certainly we all
    agree that seniors should not wait until the last possible moment to look into
    them.

     

    There are other issues but enough for now. 

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