Reverse mortgages can be a helpful financial tool for seniors, but they are often misunderstood. Many people avoid them because of scary myths or half-truths they have heard. In reality, reverse mortgages can be safe and useful when handled properly. Let’s clear up some of the biggest misconceptions about reverse mortgages and reveal the truth behind them.
You Lose Ownership of Your Home
One common myth is that the bank takes your home when you get a reverse mortgage. The truth is, you still own your home. As long as you live there, keep up with property taxes, insurance, and basic maintenance, you can stay in your home just like before.
You Can Owe More Than Your Home’s Value
Some people fear they will end up owing more money than their home is worth. However, reverse mortgages are designed to protect borrowers with something called “non-recourse” protection. This means you will never owe more than the value of your home when it is sold to repay the loan.
Reverse Mortgages Are Only for the Desperate
Another false belief is that only people who are broke or desperate take out reverse mortgages. In fact, many financially stable seniors use reverse mortgages as a smart tool to boost retirement income, pay off existing mortgages, or delay taking Social Security benefits.
Your Heirs Will Be Left With Debt
Some worry that their children or heirs will have to pay off the reverse mortgage debt. In reality, the home itself is used to pay back the loan. If the home is sold for more than the loan amount, the extra money goes to the heirs. If it sells for less, the lender covers the loss, not the family.
The Money You Get Is Taxed
Many people think the money from a reverse mortgage is taxed like income. Thankfully, the funds from a reverse mortgage are considered loan proceeds, not income, so they are generally tax-free.
You Can Be Forced to Leave Your Home
As long as you meet the basic requirements—such as living in the home as your primary residence and keeping up with taxes and insurance—you cannot be forced to leave your home because of the reverse mortgage.
Reverse Mortgages Are Hard to Understand
While they may seem complicated at first, reverse mortgages can be understood with the help of a trusted lender or counselor. There are many resources available to help seniors and their families make informed choices.
