Reverse Mortgage Objections

How valid are common objections?

If you're like most senior homeowners, you worked hard for many years to eliminate your mortgage so you'd own your home free and clear or have a very low mortgage balance. After what you've gone through, the thought of reversing that process and rebuilding the debt owed on your home can be hard to phantom. Furthermore, reverse mortgages are a relatively new type of loan that has many misconceptions. We can answer your questions & give you a comfort level and the proper information to make an intelligent informed decision as to if a reverse mortgage is right for you.

Can you lose your home?

Many seniors don't fully understand reverse mortgages and often have preconceived notions, about how these mortgages work. Seniors with home equity often erroneously think that taking a reverse mortgage may lead to being forced out of their homes or ending up owing more than the house is worth.

The fact is you won't be forced out of your home. Nor will you (or your heirs) end up owing more than your house is worth. Federal law defines reverse mortgages to be non-recourse loans, which simply means that the home's value is the only asset that can be tapped to pay the reverse mortgage debt balance. If a home's value does drop below the amount owed on the reverse mortgage, the lender must absorb the loss.

Would a home equity loan or second mortgage work better?

Some seniors who are intimidated by having to understand reverse mortgages wonder whether it would be simpler to get a home equity loan or a new mortgage that allows them to take some equity out of their home. The problem with this approach is that you now you have to begin paying traditional mortgage loans back soon after taking them out, thereby cutting into your monthly cash flow & savings.

Suppose that you own a home worth $250,000 with no mortgage debt. You decide to take out a $100,000, 15-year mortgage at 8 percent interest. Although you will receive $100,000, you'll have to begin making monthly payments of $956. No problem you may think; I'll just invest my $100,000 and come out ahead. Wrong!

Most seniors lend toward safe bonds, which may yield in the neighborhood of 5 to 6 percent - yielding about $416 to $500 of monthly income - far short of the amount you would need to cover your monthly mortgage payments. You could invest in stocks and earn the market average return of 10 percent per year, which is by not guaranteed, your returns would amount to more - $833 per month - but still not enough to cover your monthly mortgage payment. (Also note that most income from stocks and bonds is taxable at both the federal and state level. By contrast, reverse mortgage payments you receive are not taxable, yes, tax free)

Also, another downside of taking out a traditional mortgage to supplement your retirement income. The longer you live in the house, the more likely you are to run out of money and begin the possibility of missing loan payments because you drain your principal (savings) to supplement inadequate investment returns and cover your monthly loan mortgage payment. If that happens, unlike with a reverse mortgage, you may be faced with foreclosure on your loan, and you can lose your house.


Reverse Mortgage Man
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