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Setting the Record Straight
Reverse Mortgage Misconceptions You May Have Read or Heard
MISCONCEPTION #1 - THE LENDER OR BANK WILL TAKE MY HOME:
With a reverse mortgage, the homeowner retains title throughout the life of the reverse mortgage. You cannot, as a result of a reverse mortgage, be forced out of your home as long as your property taxes and insurance are paid and the home is maintained in reasonable living condition.
The fact is that the home MUST be in and REMAIN in the name of the borrowers only. You and your family or your estate continues to retain ownership of your home, just like in a regular or “forward” mortgage. The Lender does not take control of the title, own or take your home, nor do they have any rights to it. The lender's interest is limited to the outstanding loan balance.
A reverse mortgage is similar to a forward mortgage - a lien is placed on the property, and the lien will eventually have to be repaid. The mortgage ends upon the death of the last borrower living in the home; the voluntary sale of the home by the homeowner, or if the homeowner voluntarily moves out of the home for at least 12 months. Only then will the lender want its money back and will use the house as collateral. At this point the home is usually sold. The lender receives the amount of the mortgage and you or your heirs receive the remaining proceeds.
Most properties secured by reverse mortgages still have equity when a maturity event occurs; the borrower or heirs can opt to sell the home to repay the loan and preserve this equity for the benefit of the borrower or his/her estate. If the home is for some reason worth LESS than the amount due on the loan, however, the homeowner is not obligated to pay the difference: Since the HECM is insured by the FHA, you can never owe more than the marget value of the home, even if the balance is greater. You or your heirs can never be forced to pay more than the value of the home.
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