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.
…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….
Written by Elizabeth Ecker