Reverse Mortgage Fact vs. Fiction

Submitted by: Onisha Williams

“There’s no place like home, there’s no place like home, there’s no place like home” ~ Dorothy in The Wizard of OZ

In life we learn that there is fact and there is fiction, and then there is fiction that sounds like fact! Ultimately, the FHA Home Equity Conversion program is a tool that was designed to help Older Adults who want to age and receive services in their home. Over the years the term “Reverse Mortgage” has become a topic that will garner mixed responses to any random survey of passersby’s. So let’s walk down the Yellow bricked road to find out if the Reverse Mortgage will lead to
ruby slippers or rotten apples!!

Fact or Fiction?

My children will have to repay the money I borrowed plus interest.
– This is a Fictional Fact

Interest compounds daily on the initial loan balance. At the time of repayment the amount borrowed, accumulated interest, service fees, mortgage insurance premiums, and settlement costs that were financed into the loan are included in the pay off balance. The loan is typically repaid at the time of sale of the property. If the pay off balance exceeds the amount of money that can be obtained from the sale of your home, the FHA mortgage insurance kicks in to cover the difference- ultimately limiting the liability of paying back the loan balance to the amount of money that your home could be sold for.
If your family wanted to keep your mortgaged home, the payoff balance would be repaid by either refinancing into a new loan or through an alternative pool of assets (i.e. life insurance benefit, private funds)

I’m selling my home to the Bank/Government for less than it is worth
~This is fiction

Your lender and the Department of Housing and Urban Development would have a mortgage, also known as a lien, on your property. The amount of money you receive would only be a portion of your home’s value. The remaining equity would remain available to you subject to the terms of your agreement, typically the accumulation of interest & related fees over time. You retain the ability to sell, refinance, or will your property to any entity you choose at any time during the life of the loan. You also will be living in your home - if you sold the home you would give up title and relocate, or pay rent to stay in the property after the deed was transferred. At the time that you or your family does sell your home, the Reverse Mortgage balance would be paid at that time and any remaining equity would be dispersed to you and/or your heirs based on your choices.

This loan is only for people who have no other choice, it’s a loan of last resort.
~This is Fiction

There are always people who are making difficult choices in regards to elevating or maintaining their quality of life, but at this time there are no restrictions on the use of the funds beyond the basic eligibility requirements. CPA’s and Financial Advisors recognize the program as a financial tool that many families are taking advantage of while rates are low and many other credit based programs are being eliminated or are inaccessible to many potential borrowers. The Reverse Mortgage is a product that can facilitate a broad spectrum of financial goals and needs.

Do you have a fact or fiction question, or just need clarification? Email me your questions to be included in the next Fact or Fiction post!