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Reverse mortgages can be a great way for seniors to live the life they deserve. If you meet the qualifications, the payments from a reverse mortgage can help maintain your quality of life or even provide enough “income” that you can do all the things you’ve always thought you’d do in your retirement years.

Unfortunately, due to the poorly-designed reverse mortgages from 20 years ago, there are quite a few myths surrounding this form of lending. These misconceptions often keep seniors from taking advantage of these loans.

Below are the biggest misconceptions followed by the truths surround those beliefs:

Misconception #1 – The lender gets your house.

This is the most common myth concerning reverse mortgages. The truth is that you keep ownership of your home. As long as you pay your taxes and insurance, for as long as you live in your home the lender can’t foreclose on the loan.

Some of this confusion comes from the fact that when someone with a reverse mortgage moves, they sell off the house to pay off the loan. Even then, the mortgage company has not “taken” the house.  It’s sold to another buyer then the loan is paid off, exactly as happens when a home with a traditional mortgage is sold.

Misconception #2 – You won’t have an estate left for your heirs.

This really depends much more on you than the reverse mortgage. Even if your only asset is the equity in your home and you max out the reverse mortgage before you die, your heirs will still get your home – they just have to pay off the loan. If they choose to sell the house to draw out the remainder of the equity, they can. If they choose to keep the home, they will either have to pay off the loan in cash or get a traditional mortgage to cover the loan. Obviously, in the best scenario, your heirs would be receiving other assets than just your home, but again, this is up to you and your choices. It has nothing to do with a reverse mortgage.

Misconception #3 – You can’t qualify due to poor credit.

If you’ve had poor or even moderate credit you might have been turned down for a loan in the past. We all know how embarrassing that can be. However, with a reverse mortgage you can never be denied because of bad credit. In fact, your credit rating isn’t even a consideration for approval. The only reason the lender even runs a credit report is to make sure you don’t owe the government any back taxes. If you do, normally you’d just use a portion of the reverse mortgage to pay those taxes before your start drawing money for yourself.

Misconception #4 – You have to be completely debt free.

You have to own a home to quality for a reverse mortgage, but even if you still owe something on it, as long as you have a significant equity in your home, you don’t have to have it completely paid off. The lender will calculate how much they can let you borrow and then they will subtract the amount you still owe. Again, your new reverse mortgage would first pay off the existing mortgage then your payments could start – payments that you can use for anything you wish. This might be the first time in your life that you haven’t had house payments.

Misconception #5 – The only people who get reverse mortgages are those in desperate need.

That might have been true in the past, but today most people choose to get a reverse mortgage out of want rather than need. They want to have an extra cushion or want to have extra income to handle future expenses. Perhaps they just want to live a better lifestyle than their retirement income can afford so they use the equity in their home to help them do this.

Reverse mortgages can be very helpful in allowing seniors to live more comfortably and do all the things they wish they could afford. There is no longer the risk or even the stigma that were once attached to these types of loans.

Have you heard about the different myths about reverse mortgage?  Do you want to know the truth about this loan? Read on so you can thoroughly understand the basics of reverse mortgage. 

The Lender Will Take Your House 

This myth is totally untrue.  With a reverse mortgage, you remain the owner of the home while the lender records a lien.  It is similar to a forward mortgage.  The difference is that you get payments from the lender because you have borrowed using the equity of your home.  So instead of making monthly payments for the money you borrowed, the lender will give you a lump sum, a monthly payment, or a line of credit.  It is also possible to get all three options.  

There is no need for you to make payments on the loan.  The interest on the other hand will accrue until the loan is paid down in full.

 In case you pass away, you sell the home, or you move permanently to another home, then the loan becomes due and payable.  You may opt for a second home program which is currently available.  But you have to remember that you or your heir will retain the title to the property.  

Those with Bad Credit Cannot Apply 

This is another myth.  In a reverse mortgage, credit qualification is not applicable.  If you are getting the Home Equity Conversion Mortgage of the government, the only requirement is that you must not be delinquent on your other loans like FHA loan, Federally Insure SBA loan, Federally Insured Student Loan, and similar other programs.  You can even apply for reverse mortgage if you have declared bankruptcy.  The only requirement is that you should have a history of consistent payment for the bankruptcy plan for 12 months.  In fact, you can qualify for a reverse mortgage even if you are already facing a foreclosure.  

The House Must be Fully Paid 

Some people believe that the house must be paid in full before they can qualify for reverse mortgage.  This is completely false.  It is true that most seniors get reverse mortgage with homes that are already paid in full or have very small balances.  The money from the loan can be used to support them during their retirement.  There are also seniors who take out reverse mortgage in order to pay off existing financing.  The cash from reverse mortgage enables seniors to close a loan so that they can stop payments for life.  

Reverse Mortgage Affects Social Security Benefits

This is another myth that you must ignore.  This type of mortgage will never affect your social security benefits.  Need based programs like Medicaid can be affected if the reverse mortgage is improperly managed.  So it is recommended to consult a professional financial advisor on this matter.  But you will get the guarantee that retirement programs, social security benefits, and taxes will never be affected by reverse mortgage.  

A reverse mortgage loan can greatly help you.  This loan could give you a good source of income when you retire.  Do not believe the false myths because reverse mortgage is a good financial option.