With a reverse mortgage, homeowners aged 62 and up can tap their home equity for a variety of purposes. Some use the funds as a source of ongoing income. Others may use the money for home improvements to make aging-in-place easier — or to achieve another financial goal.
While reverse mortgages are popular, not everyone knows exactly how they work. As a result, there are many myths about reverse mortgages that give people the wrong impression. Here’s a look at four common myths about reverse mortgages.
1. It’s Too Difficult to Qualify
Generally, qualifying for a reverse mortgage isn’t inherently difficult. While the eligibility requirements are cut and dry, they aren’t any more challenging than what you find with many other home loan products, such as traditional mortgages or home equity lines of credit (HELOCs).
The primary requirements are rigid but simple. You must be at least 62 years old, own your home (either with or without a mortgage), have a minimum required amount of equity or more, and use the house as your primary residence. A financial assessment also occurs to ensure you can manage relevant upkeep costs and required expenses – such as property taxes – and an appraisal happens to confirm the fair market value of your house.
Depending on the program, you might need to participate in a reverse mortgage counseling session before the underwriting phase, too. However, that’s usually the most cumbersome part of the process.
2. The Bank or Government Will Take the Home
Reverse mortgages are designed to help seniors stay in their homes. As long as you’re meeting the terms of the arrangement, the bank or government entity behind your reverse mortgage won’t foreclose on the property or force you to leave.
Additionally, a reverse mortgage doesn’t prevent heirs from inheriting the house if you pass away. As long as they can repay the amount owed to the reverse mortgage lender, they can keep the property.
3. Reverse Mortgages Are a Last Resort
Some people mistakenly believe that reverse mortgages are a last resort that’s only appropriate in desperate financial situations. In reality, reverse mortgages are a viable option for any qualifying person who has a financial need they can’t otherwise meet.
Based on Social Security Administration (SSA) data from December 2022, the average SSA retirement benefit is just $1,775.81 per month, which is far less than what most retirees need to survive. While many seniors have access to employer-related retirement benefits, these may not provide enough to support a reasonable lifestyle. As a result, a reverse mortgage could make a substantial difference, providing funds to make retirement feasible and comfortable.
4. You Can’t Sell the Home
A reverse mortgage doesn’t prevent you from selling your home. Reverse mortgage borrowers maintain title rights to their homes, so they can decide to sell at any time.
However, a reverse mortgage does mean that you’ll need to repay any reverse mortgage balance with proceeds from the sale or another source of funding. You’ll need to cover the balance (including any owed fees and interest) at the time of the sale’s closing. As a result, it doesn’t impact how much you receive after the sale, but it doesn’t prevent a sale from occurring.
