Ten Myths About Wisconsin Reverse Mortgages

With the recent wave of Wisconsin reverse mortgages, there is a lot of misinformation out there. I heard some really bad reasons not to get a reverse mortgage and decided it was time to write about some of them. Remember they’re not for everyone, but make sure the reason you’re not looking into them isn’t on this list. If you haven’t even looked at a reverse meet for any of these reasons, look again, it might work for you.

1. By taking out a reverse mortgage, I no longer own the house that my bank owns. This is not true because you are held on title as the owner of the property. In fact, the bank cannot foreclose on you like a term mortgage. You live in the house for as long as you can and you will always own the property until you decide to sell it. Just like a regular mortgage, the bank will place a lien on the home to make sure it’s paid off, but you’ll retain full control of the home.

2. My children will receive nothing when I fail. Your estate only owes as much as the balance of the mortgage at the time of settlement. The reward is however much you have spent plus interest. Any excess equity is passed on to your heirs. the bank does not keep any of this extra capital. As an easy example, if you owe 25,000 on the mortgage and the house is worth 125,000 and it was sold. You would get the extra 100,000, not the bank or anyone else. The lender would collect there 25,000 that they have given you.

3. My bank could force me to leave my house. The FHA/HUD reverse mortgage specifically states that you cannot be forced to leave your home. You must be unable to live there, be deceased, or want to sell.

4. Social Security and Medicare will be affected by the money you receive from the reverse mortgage. This money is actually considered a loan and not income. For this reason a rev. Mortgage does not reduce Social Security or Medicare benefits as some would have you think.

5. I must have very good credit and income to qualify for one. It’s actually much easier to qualify for a reverse mortgage than a term mortgage you’ve had in the past. Since there are no payments, you do not need income to qualify. When it comes to credit, the only thing that is looked at is that if you are currently going through bankruptcy, you may not qualify. If you have bad credit, you will still qualify for a reverse mortgage.

6. My house must be free and clean with no mortgages in order to obtain it. No, you can have a mortgage and still qualify for a reverse mortgage. You’ll pay off your current mortgage with your new mortgage and get rid of the old mortgage payment. You must have enough equity to pay off the mortgage in full, and you will need to use some of your available cash to do so.

7. There are large out-of-pocket expenses that make it difficult for seniors to get the loan. All costs are financed, whether closing costs or interest. That means there are few out-of-pocket costs at any point in the reverse mortgage.

8. Interest rates are higher than a regular mortgage. This is not the case. In most cases, the reverse mortgage has a lower rate than the current conforming fixed rate. The interest rate for the HECM product is set by the federal government.

9. You could “outlive” the loan (don’t we all want that?). FHA/HUD mortgages are specifically designed so that you do not outlive the loan. When you get the reverse mortgage, the lender will charge you 2% to purchase the required FHA mortgage insurance. That insurance guarantees that even if you live to be 100, you can never owe more than the value of your home and you can never be forced to leave.

10. A reverse mortgage is like a home equity loan. First, home equity loans can have many requirements, such as high income, low debt, and good credit, that a reverse does not. Second, you can “outlive” a home equity loan and end up being foreclosed on by the bank. This can never happen with this type of mortgage. Third, a reverse mortgage typically has significantly lower interest rates.

Those were ten of the biggest misconceptions out there about reverse mortgages. I’m sure I missed a few, but the key is to get in touch with a good expert and they will be able to answer your questions. There are many resources that will help educate, I suggest you do some reading!