Over the past 20 years, reverse mortgages have become an increasingly popular financial tool among older home owners planning their retirement. But they have also been controversial, and there are many misconceptions about if and when they are the right for seniors.
The National Council on Aging, a federally-approved Reverse Mortgage Counseling Intermediary, has released 8 Myths about Reverse Mortgages to help older adults keep up with the changing facts about this special type of home loan.
Also known as Home Equity Conversion Mortgages, reverse mortgages allow home owners aged 62 and older to convert a portion of their home equity into cash. Unlike a traditional home equity loan or second mortgage, borrowers do not have to repay the loan until they either no longer live in the home as their principal residence or they fail to meet the obligations of the mortgage.
“Millions of older Americans who have not saved enough for retirement are looking for new ways to cope with today’s financial realities,” said Barbara Stucki, NCOA vice president for home equity initiatives.
“Taking out a reverse mortgage is a big decision. Borrowers must carefully consider their options on how to use this valuable financial asset. We want seniors to make smart decisions and know about resources that can help them stay independent longer.”
The 8 myths about reverse mortgages include:
Myth #1: A reverse mortgage works the same as any other type of home loan.
Myth #2: Most reverse mortgage borrowers use their loan funds for vacations and other fun things.
Myth #3: Reverse mortgages are too expensive.
Myth #4: Reverse mortgages should only be used as a last resort.
Myth #5: Most people who take out a reverse mortgage are elderly widows.
Myth #6: A fixed-rate reverse mortgage is always a good idea.
Myth #7: Reverse mortgage counseling is a waste of time.
Myth #8: Most reverse mortgage borrowers who end up facing foreclosure were scammed.
Source: National Council on Aging