Mortagage informatiom centre and much more easy foryou understanding about mortgage: How Does a Reverse Mortgage Work? Learn More about the Myths and Misconceptions about Reverse Mortgages

How Does a Reverse Mortgage Work? Learn More about the Myths and Misconceptions about Reverse Mortgages

Posted on 23 December 2012.

When you’re trying to understand how does a reverse mortgage work you’ll have quite a few questions to ask. One thing that can become quite a problem is the amount of information that is being spread about these types of mortgages that simply is not true. Since reverse mortgages are becoming more and more popular these days as seniors are looking for a way to fund their retirement, the myths and misconceptions are spreading like wildfire. In order to put these to rest please look through this information to find out the truth about reverse mortgages and how they work.
Myth #1 The mortgage must be paid back every month
A reverse mortgage is a completely different type of mortgage and there is no repayment that needs to be made every month. In fact, this loan only needs to be repaid once it is due, which usually occurs when the homeowner moves out of the home or passes on. While the loan is still outstanding, however, the interest will still accumulate.
Myth #2 The homeowner must turn over the title to the lender
This is probably the biggest misconception and myth about reverse mortgages that is being passed around. Since a reverse mortgage is still considered to be a loan, the borrower keeps the title to the home. The lender does not own the home in any way at all.
Myth #3 You aren’t allowed to sell your home
You can sell your home as long as you are going to be making more in the sale than the amount that you owe to the lender. As well, any of the extra money will go to you as the homeowner and the lender does not receive a penny of it. A home loan still needs to be considered as a variation of a regular home loan so that you can fully understand that you continue to hold the title on it.
Myth #4 There cannot be a balance owing on the home
You do not have to own the home clear and free in order to be eligible for a reverse mortgage. In understanding how does a reverse mortgage work, this is in fact the first thing that you’ll need to comprehend. If you owe money on your home you can still be eligible for a reverse mortgage. Qualifying will depend on how much of the balance is left owing.
If you do qualify for this mortgage you can opt for a lump sum or line of credit as your payment option. The balance owed on the original mortgage is paid off with the money payment and then the rest is yours to keep and use as you see fit. There will be no more repayments needed on your original mortgage since the entire amount will have been paid off in full.
Myth #5 My heirs will end up with a huge debt
This is not true. A reverse mortgage carries mortgage insurance so that if the homeowner that is borrowing the money ends up owing more than the value of the home, the lender is only able to get back the home’s value. This means that your heirs cannot owe more than the value of the house. As well, if there is still equity in the house, the estate gets this equity once the home is sold.
Myth#6 I need to have a high income
Your income level will not be any type of determining factor when you are applying for this mortgage type. You can have any level of income and still qualify.
Myth#7 I need to have good credit to qualify
Again, this is a false statement. In most cases your credit standing will not be a factor in administering the loan or not. The only thing that may affect the reverse mortgage is an IRS tax lien or something else that would affect the title of the home.
Myth#8 I can only use the money for certain things
One of the first things to learn when understanding how does a reverse mortgage work is that you can use the money for anything you want. You can fix up your house, take a long vacation, buy a new car or even burn the money if you want. The money is yours and you have the right to do anything that you want with it and will not have to account for the spending of it in any way at all.
These are the most important myths that need to be cleared up when you’re learning how does a reverse mortgage work. The truth is that reverse mortgages are perfect for some seniors and not so great for others. Gather together all the information that you possibly can so that you are able to make an informed decision with confidence knowing that this is the right solution for you.
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