Over the years, there have been countless ways senior homeowners have used and benefitted from reverse mortgages, which include Home Equity Conversion Mortgages (HECM). Reverse mortgages enable homeowners to access the equity in their homes and use it to pay expenses such as credit card debt, an existing mortgage, and medical costs. Many people think it is a new idea, but reverse mortgages and their many benefits have actually been a viable option for senior homeowners for over five decades.
The History of Reverse Mortgages
In 1961, a newly widowed woman found herself needing a way to afford to remain in her home despite the death of her husband and the loss of his income. To help her, a family friend working in the mortgage industry wrote the first loan type of its kind, which allowed her to stay in her home while accessing its equity. This product became known as a reverse mortgage.
In 1988, President Ronald Reagan signed the reverse mortgage bill into law, and thus gave the Federal Housing Administration (FHA) the authority to insure reverse mortgages, and further safeguard borrowers. Since then, this type of loan has evolved into the popular retirement financial tool it is today.
Many senior homeowners have found that this product can greatly benefit them in significant ways. They:
- remain living in the home and retain ownership of the home
- avoid a monthly mortgage payment
- receive the home's equity in non-taxed cash
- can have a readily available HECM line of credit in case of emergencies
The Misconceptions of Reverse Mortgages
As with any loan product, there are misconceptions that sometimes arise due to misinformation. Common misconceptions have included the following:
Misconception: Homeowners will lose ownership of the home.
Truth: With reverse mortgages, homeowners continue to retain ownership and title of the home as long as loan terms are met. Some of the loan terms include continuing to pay all property taxes, home insurance, and maintenance expenses.
Misconception: Heirs lose their inheritance.
Truth: Heirs do not lose their inheritance; in fact, heirs keep all remaining equity after the loan is repaid, and fortunately, it is common for home equity to continue rising with time. Heirs can also choose to keep the home instead and refinance the loan in another manner, such as a conventional mortgage loan.
Misconception: Homeowners lose Medicare, pension, and Social Security benefits.
Truth: Any Medicare, pension, or Social Security benefits will remain unaffected with a reverse mortgage. Types of income that may be affected are income based benefits such as Supplemental Security Income (SSI) and Medicaid.
Misconception: A reverse mortgage is unaffordable.
Truth: There are the usual fees associated with any loan, like closing costs. But when compared to other loans, reverse mortgages are similar in value but offer something many loan products do not: the ability to finance many of the costs of the loan into the loan itself. Minimal up-front and out-of-pocket expenses are therefore immensely attractive for senior homeowners concerned with costs.
Misconception: Reverse mortgages should only be used as a last resort.
Truth: As more and more homeowners are beginning to understand, reverse mortgages are actually best utilized as a financial plan in retirement rather than as a last resort during a financial crisis.
Misconception: Homeowners risk owing more than the home is worth.
Truth: As a non-recourse loan, reverse mortgages are backed by FHA insurance. This means that homeowners will never owe more than the value of the home when sold. If ever the loan balance surpasses the home's value, federal insurance will cover the difference.
Reverse mortgages have continued to improve and further develop throughout the years, helping more and more seniors reach the financially sound retirement they desire.
About American Advisors Group
American Advisors Group, the nation’s leader in reverse mortgage lending, is dedicated to helping American seniors convert a portion of their home equity, a largely untapped asset, to help fund their retirement needs. To learn if a reverse mortgage can work for you, visit https://www.aag.com/reverse-mortgage-calculator/ to use the AAG reverse mortgage calculator.
American Advisors Group is proud of its A+ rating by the Better Business Bureau, and 97% customer satisfaction rating, and is a proud member of the National Reverse Mortgage Lenders Association (NRMLA). To learn more about reverse mortgages and American Advisors Group, please visit www.aag.com.
About The Author
As a writer for American Advisors Group, the leading U.S. reverse mortgage lender, Alberta Lim is committed to sharing news and information seniors can use to improve their quality of life.