Reverse mortgages continue to be a widely misunderstood product at worst, or a product that is at least not understood correctly by most regular people. Answering some of the more common questions about reverse mortgages can help to alleviate some of the lack of information among consumers, which is precisely what finance website ThinkAdvisor has aimed to do.
In a new piece published this week, the site aims to address a series of 12 common questions about reverse mortgages, including very basic information such as how much money can be borrowed; whether or not a loan’s proceeds are taxable; and primary components which determine reverse mortgage eligibility.
The piece also takes aim at some potentially less common questions among average borrowers, including whether or not interest accrued on a reverse mortgage loan is deductible by a borrower; whether or not heirs qualify to receive funds after the loan is settled; and even a question about using a Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM) to purchase a new home.
“Known as the HECM for Purchase, this program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction,” the answer reads. “This program has been available since it was originally introduced as part of the Housing and Economic Recovery Act of 2008, yet has only recently started gaining popularity.”
“Popularity” may be a relative term, since industry estimates place HECM for Purchase (H4P) usage at less than 7% of the reverse mortgage market as of summer 2021. Specifically, data compiled by Reverse Market Insight (RMI) and shared with RMD shows that in 2019, there were 2,305 H4P endorsements in a year which had a total of 34,420 overall HECM endorsements leading to an H4P penetration rate of 6.7%.
The question regarding heirs having the ability to receive funds after the reverse mortgage has been settled feeds into a very common myth about a reverse mortgage loan, which says that “the bank owns your home.” Even though large banks have not been involved in the reverse mortgage business for some time, many believe that heirs are simply cut off from any funds from the sale of a home even if they settle the loan balance.
“The final settlement of the loan will come due when the borrower(s) sell the home, die, or no longer use the home as the primary residence,” ThinkAdvisor specifies. “At that time, the heirs or estate have six months (this can be extended for a second six months) to repay the lender the principal plus accrued interest, and any other legitimate charges associated with the loan. Should the amount generated from the sale of the home be greater than the amount owed to the lender, all proceeds remaining belong to the borrower(s), heirs, or estate.”
Read the piece presented as a slideshow at ThinkAdvisor.