How Reverse Mortgages Work

MISCONCEPTION # 1 – I could lose my home. TRUTH -With a reverse mortgage you retain ownership of your home and control of the title. You can remain in your home as long as you wish and cannot be evicted or forced to sell.

MISCONCEPTION # 2 – The lender will own my home.

TRUTH –The fact is that you retain title and ownership to your home, and can choose to sell your home anytime you wish. The lender cannot force you from your home or foreclose on you as long as you maintain your home and pay your property taxes and homeowners insurance. You pay off the loan balance and retain the difference – also known as your equity.

MISCONCEPTION # 3 – My children or heirs will be responsible for the repayment of the loan.

TRUTH -A reverse mortgage is a non-recourse loan, which means that your house stands alone for the debt. The lender can only derive repayment of the loan from the sale or refinance proceeds of the home. You or your estate can never owe more than the home's value at the time the loan is repaid. The lender cannever come after anything else in the estate nor can they come afeter teh heirs for any deficiency between the value and the balance of the loan.

MISCONCEPTION # 4 – I must own my home free and clear in order to qualify for a reverse mortgage.

Not true. If you have a balance on a mortgage or home equity loan, a portion of the proceeds from the reverse mortgage will be used to pay off your existing loan, thereby eliminating your current house payment. You are then free to do whatever you wish with the remaining funds available to you from the reverse mortgage.

MISCONCEPTION # 5 – I must have good credit and income to qualify for a reverse mortgage.

Your credit or income is not even a consideration when applying for a reverse mortgage.

MISCONCEPTION # 6 – Only the "cash poor" or desperate seniors that failed to plan for retirement get reverse mortgages.

Although some seniors may have a greater need than others for the cash or monthly income, reverse mortgages have become a popular financial planning and estate-planning tool. Long term health care insurance and in home health care are popular uses for reverse mortgage proceeds. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses. With people living longer and being retired longer reverse mortgages will become a more and more popular way to finance the cost of aging and being retired longer.

MISCONCEPTION # 7 – By getting a reverse mortgage I would be living off of borrowed money.

The money from a reverse mortgage is already your money. It's just that it's trapped in your home and not accessible to you unless you take out some type of mortgage. All other mortgages, except a reverse mortgage, require you to make payments back to the lender. But with a reverse mortgage you make no payments because no payments are required. You do not repay the loan for as long as you choose to live in your home. You are simply accessing money that is already yours through a safe government insured program. And best of all – the proceeds are TAX-FREE. It is like having our cake and eating it- selling off part of the house without having to move. You have taken care of the house, now the house can take care of you. what could you do with the mortgage payment every month if you did not have to send it to the mortgage company.

MISCONCEPTION # 8 – When a reverse mortgage comes due, the bank sells my home.

Not true. At the time the last borrower permanently leaves the home the loan must be repaid within the following 12 months. At that time, you or your heirs can either pay the balance due on the reverse mortgage, through a traditional refinance or from other assets and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage, exactly as if there were a standard forwrd mortgage on the property.

MISCONCEPTION # 9 – The Reverse Mortgage will impact my Social Security or Medicare.

Not true. Reverse mortgage proceeds do NOT affect any other benefits except perhaps MediCal. However, if your payout options are structured properly, even MediCal will not be affected.

MISCONCEPTION # 10 – A Reverse Mortgage is expensive.

While a reverse mortgage generally costs more than a conventional loan, it is much less expensive than selling your home, relocating and assuming new monthly expenses. The added feature of no income or credit underwriting and no payment as long as you live make it the only viable alternative for Seniors with out enough income to qulify or those who have to sell their old home before being able to qualify for a new one.

Reverse Mortgage Misconceptions

I could lose my home.

With a reverse mortgage you retain ownership of your home and control of the title. You can remain in your home as long as you wish and cannot be evicted or forced to sell.

The lender will own my home.

The fact is that you retain title and ownership to your home, and can choose to sell your home anytime you wish. The lender cannot force you from your home or foreclose on you as long as you maintain your home and pay your property taxes and homeowners insurance.

My children or heirs will be responsible for the repayment of the loan.

A reverse mortgage is a non-recourse loan, which means that your house stands alone for the debt. The lender can only derive repayment of the loan from the sale or refinance proceeds of the home. You or your estate can never owe more than the home's value at the time the loan is repaid.

I must own my home free and clear in order to qualify for a reverse mortgage.

Not true. If you have a balance on a mortgage or home equity loan, a portion of the proceeds from the reverse mortgage will be used to pay off your existing loan, thereby eliminating your current house payment. You are then free to do whatever you wish with the remaining funds available to you from the reverse mortgage.

I must have good credit and income to qualify for a reverse mortgage.

Your credit or income is not even a consideration when applying for a reverse mortgage.

Only the "cash poor" or desperate seniors that failed to plan for retirement get reverse mortgages.

Although some seniors may have a greater need than others for the cash or monthly income, reverse mortgages have become a popular financial planning and estate-planning tool. Long term health care insurance and in home health care are popular uses for reverse mortgage proceeds. A growing number of

people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.

By getting a reverse mortgage I would be living off of borrowed money.

The money from a reverse mortgage is already your money. It's just that it's trapped in your home and not accessible to you unless you take out some type of mortgage. All other mortgages, except a reverse mortgage, require you to make payments back to the lender. But with a reverse mortgage you make no

payments because no payments are required. You do not repay the loan for as long as you choose to live in your home. You are simply accessing money that is already yours through a safe government insured program. And best of all it is TAX-FREE.

When a reverse mortgage comes due, the bank sells my home.

Not true. At the time the last borrower permanently leaves the home the loan must be repaid. At that time, you or your heirs can either pay the balance due on the reverse mortgage, through a traditional refinance or from other assets and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage.

The Reverse Mortgage will impact my Social Security or Medicare.

Not true. Reverse mortgage proceeds do NOT affect any other benefits except perhaps MediCal. However, if your payout options are structured properly, even MediCal will not be affected.

A Reverse Mortgage is expensive.

While a reverse mortgage generally costs more than a conventional loan, it is much less expensive

The Solution for Seniors

Problem- One of the problems in the housing market is that seniors, who have liquid assets are either feeling the pinch of the slow economy or are slowing down and are semi-retired or retired without the income they are accustomed to. They cannot show enough documented income to support the house they would like to purchase .

Solution –HUD has now authorized purchase mortgages with higher down payments and no verification of income or credit score for people over age 62 and a half. This mortgage has a fixed rate option and requires NO PAYMENT for the rest of the life of the owner-It is called a Home Equity Conversion Mortgage and it is now available for purchases.

“When we were ready to retire and move to Arizona, with adequate savings and funds for a down payment, we found that we did not qualify for a conventional mortgage because we could no longer offer proof of regular employment and income. A savvy friend suggested that we contact Drew Richman. With his help and our reverse mortgage we now live in our beautiful new home, with no worries about losing it and no more payments for the rest of our lives! “

– Ann Lamm, Sedona, Arizona