When sitting down with a new prospect the other day I asked what they had heard or thought about reverse mortgages. Bob responded that reverse mortgage borrowers lost control of their home and their money. Have you heard this too? I want to correct this misconception for you.
Reverse mortgage borrowers remain in control of their home. They own the home, title remains in their name, just like with any mortgage.
They have the option to paint the home the color of their choice, plant trees or landscape as they choose, and to decorate the inside as they desire (or not make changes).
I had one borrower ask if they could paint their house purple. With a chuckle I responded they could although the neighbors may not like the color purple. The point is, as the homeowner they have the option to choose what color they want to paint their house.
Borrowers are, however, responsible for maintaining the home. This is to the homeowners best interest anyway, and whether they have a reverse mortgage, a conventional mortgage or no mortgage at all. Maintaining means things like no bare wood or chipped paint, roof replaced when needed, foundation and structure is sound, electrical and plumbing in working order.
In their will or trust the reverse mortgage borrowers still choose who will inherit the home or equity of the home.
While the reverse mortgage borrowers will be using the proceeds for their needs or wants during the term of the loan, when the home is no longer their primary residence, the loan is due and payable. The loan is generally paid back from the sale of the home with no personal liability to the borrower or their heirs. If the home is sold for more than the loan balance the borrower or the heirs receive the difference.
If an heir wants to keep the home, they have this option – they would just need to pay off the reverse mortgage balance. This can be done through a conventional mortgage, their own funds or if they were the beneficiary on an insurance policy.
Note that if the loan balance is higher than the fair market value, the borrower or their heirs only need to pay 95% of the fair market value of the home, they do not need to come up with the difference. With the FHA HUD insured Home Equity Conversion Mortgage (HECM) the FHA Mortgage Insurance will cover the difference for the lenders.
They have the option to sell when they want and choose the real estate agent. If they have passed away then their estate chooses the real estate agent.
The way one wants to receive their reverse mortgage proceeds is also their choice. They can receive the funds in a line of credit, monthly payments, lump sum or a combination of these.
And how they use these funds is in their control – lenders cannot dictate how one spends the proceeds from their reverse mortgage. Borrowers can and have used their reverse mortgage funds to pay for home repairs, purchasing a new car, traveling, home care or whatever one needs or wants… it’s their choice.
The reverse mortgage provides control for borrowers to have funds so they can make their own choices. For example, where they want to live (in their own home vs government subsidized housing), who they want to care for them (vs the government deciding which home care agency they can use).
Reverse mortgage borrowers do remain responsible for paying their property taxes, having home owners insurance, maintaining the property and paying home owner association dues if applicable, just as they do with or without a conventional mortgage.
Losing control of your home or money with a reverse mortgage is a misconception. In reality reverse mortgage borrowers have control and in some cases even more control than without doing a reverse mortgage; having funds available gives them more choices and options.
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