12 Myths About Reverse Mortgages
Understand your options before deciding.
Understanding a reverse mortgage starts with separating common assumptions from the actual loan terms.
A reverse mortgage is a category of loans. HECMs are FHA-insured reverse mortgages. Proprietary reverse mortgages are private programs with separate requirements and protections. Neither is right for everyone.
These twelve questions can help you begin comparing your options. For the program differences, see HECM vs. Proprietary Reverse Mortgages.
Myth 1
The bank will own my home.
FACT
Taking out a reverse mortgage does not transfer ownership of your home to the lender.
What to Know
You retain ownership, with a mortgage against the property. You must meet the loan’s requirements, including applicable taxes, insurance, maintenance and occupancy obligations. Failure to meet those obligations can make the loan due and may lead to foreclosure. Review the requirements of the particular HECM or proprietary program.
Myth 2
I’ll have to make a monthly mortgage payment.
FACT
A reverse mortgage generally does not require scheduled monthly principal-and-interest payments on the reverse mortgage while the loan requirements are met.
What to Know
That does not eliminate property taxes, insurance, maintenance, occupancy requirements or other applicable obligations. Interest and charges can accumulate, increasing the balance owed.
If an applicable proprietary second-lien reverse mortgage leaves your existing first mortgage in place, that first-mortgage payment continues. Ask which payments and expenses would remain in your household budget.
Myth 3
My children will lose the house.
FACT
A reverse mortgage does not automatically prevent your children from inheriting the home, but keeping it generally requires satisfying the loan.
What to Know
Heirs may have options to retain or sell the property. They must respond to servicer notices and meet applicable repayment deadlines. Keeping the home may require their own funds or financing.
A growing loan balance can reduce the equity remaining for an inheritance. A surviving co-borrower or eligible non-borrowing spouse may affect repayment timing under HECM rules. Proprietary spouse and heir protections must be reviewed separately; living in the home alone does not establish protection. CFPB: Reverse mortgages after a borrower’s death
Myth 4
I could owe more than my home is worth.
FACT
The loan balance can exceed the home’s value. The important distinction is what the lender can collect when repayment becomes due.
What to Know
HECMs include non-recourse protection, limiting recovery to the home rather than other assets for a covered loan shortfall. That protection does not prevent the balance from growing or guarantee remaining equity.
For a proprietary reverse mortgage, review its contractual non-recourse provisions, conditions and applicable law. Do not assume that every FHA repayment procedure applies to a private program.
Learn more about family protections and program differences.
Myth 5
I need perfect credit to qualify.
FACT
You do not need to assume that a credit problem automatically rules out every reverse mortgage option.
What to Know
Financial history still matters. HECM financial assessment considers the ability and willingness to meet ongoing obligations, including payment history, income, expenses and documented circumstances. Some situations may require funds to be reserved for property charges.
Proprietary programs have their own underwriting requirements. Poor credit, bankruptcy or financial difficulty calls for program-specific review, not automatic acceptance or rejection. Bankruptcy review may also involve its type, status, timing and required permissions.
Myth 6
I can’t have an existing mortgage.
FACT
Having an existing mortgage does not automatically prevent a reverse mortgage transaction.
What to Know
Existing liens generally must be satisfied as part of the HECM transaction, using available HECM proceeds and/or other permitted funds. The amount owed affects whether the transaction is feasible and how much would remain available.
Certain proprietary second-lien structures may potentially leave a first mortgage in place, subject to current availability and eligibility. Its payments and obligations continue.
If you already have a reverse mortgage, replacing it involves a separate comparison of benefits, costs and terms. See Reverse Refinance.
Myth 7
I have to own my home free and clear.
FACT
A paid-off home is not a universal requirement.
What to Know
This question is about equity: how much your home is worth compared with what you owe. You need sufficient equity and must meet the selected program’s other requirements.
A paid-off home does not guarantee approval or a particular amount of available funds. Existing debt, costs and required reserves can affect usable proceeds. HECM and proprietary calculations differ.
Myth 8
Every reverse mortgage is an FHA/HECM loan.
FACT
A HECM is one reverse mortgage program. Proprietary reverse mortgages are private programs outside FHA’s HECM insurance.
What to Know
HECMs follow HUD requirements. Proprietary programs have separate guidelines, features and protections.
FHA mortgage insurance premiums apply to HECMs, not proprietary loans. HECM counseling generally involves a HUD-approved agency, with qualifying refinance-waiver provisions. Proprietary counseling requirements depend on the program and applicable law. CFPB: HECM and proprietary terminology
Compare HECM vs. Proprietary Reverse Mortgages before assuming that one program’s rules apply to another.
Myth 9
Reverse mortgages are only for people who are 62 or older.
FACT
HECM borrowers must be at least 62. Proprietary programs may have different age requirements.
What to Know
Current proprietary eligibility must be checked for the selected program and your situation. No particular age or program availability should be assumed.
A younger spouse’s status under HECM rules is different from being a borrower and needs careful review. Age alone does not establish eligibility; equity, finances, property and occupancy requirements also matter. CFPB: HECM eligibility
Myth 10
Manufactured homes can’t qualify.
FACT
Some manufactured homes may qualify, depending on the property and selected program.
What to Know
HECM eligibility follows applicable FHA requirements. Proprietary eligibility follows the selected program’s property and documentation requirements.
Manufacture date, certification information, foundation, title, condition and property classification may need review. A manufactured home and a modular home are not interchangeable classifications. Missing records call for investigation, not a blanket promise or rejection.
See Manufactured Homes.
Myth 11
I can’t sell or move after getting a reverse mortgage.
FACT
You can sell or move, but doing so generally requires addressing repayment of the loan.
What to Know
A sale generally involves satisfying the reverse mortgage through closing. A permanent move can make the loan due under its occupancy provisions. Surviving-borrower or eligible-spouse circumstances may affect the outcome.
The growing balance can reduce funds available for your next home. If moving is part of your plan, compare that effect before borrowing. A new reverse mortgage for a purchase is a separate transaction with its own requirements.
See Reverse for Purchase.
Myth 12
Reverse mortgages are only for people who are out of money.
FACT
Homeowners may explore reverse mortgages for different housing and financial goals, not only financial hardship.
What to Know
Those goals may include cash-flow planning, a home purchase or access to equity for future needs. Higher-value homeowners may also want to compare proprietary options.
Available lump-sum, scheduled-advance and line-of-credit arrangements depend on the program and rate structure. These are borrowed funds, not earned income. Costs and a growing balance affect the tradeoff.
Compare alternatives—including keeping your current arrangement. Financial hardship does not automatically qualify or disqualify someone, and a reverse mortgage is not always the best answer.
Have Stan Review My Scenario
Start with your questions, your home and what you hope to accomplish.
Stan can help you compare HECM and proprietary options, understand costs and obligations, and identify questions requiring further review.
Goff Housing Solutions provides education, information and assistance. A conversation is not a loan application, approval or guarantee of eligibility, proceeds or program availability.
Mortgage loans are originated through Total Media Management LLC d/b/a Worthington Mortgage · NMLS #1018333.
Stan Goff · NMLS #294725