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Reverse Mortgage News for Seniors
Top Ten Myths About Reverse Mortgages Debunked for
Senior Citizens
Most older Americans know about reverse
mortgages but misconceptions abound
 August 9, 2007 – Reverse mortgages continue to grow
in popularity and in a recent survey senior citizens said they
understood reverse mortgages better than they did any other home-loan
product. But, there are still myths and misinformation about these
unique loans, according to Financial Freedom Senior Funding Corporation,
a major player in the reverse mortgage industry.
The company says these are their corrections to the
most frequent myths spreading misunderstanding among senior citizens and
their children.
Myth 1. - The bank takes the house OR the
borrower can lose the house.
With a reverse mortgage, the borrower retains title
to the home throughout the life of the reverse mortgage. The borrower
cannot, as a result of the reverse mortgage be forced out of his or her
home, as long as property charges, such as taxes and insurance, are paid
and the home is maintained in reasonable living condition.
Once the last borrower permanently moves out of the
home, the loan must be repaid. Most properties secured by reverse
mortgages still have equity when a maturity event occurs and therefore
the borrower or his/her heirs choose to sell the home to repay the loan
and preserve this equity for the benefit of the borrower or his/her
estate.
Myth 2. - The home must be paid off or be
debt-free to qualify for a reverse mortgage.
Reverse mortgages convert home equity into cash. As
long as there is sufficient equity in the property, the homeowner may be
eligible for a reverse mortgage. In fact, many seniors use a reverse
mortgage to pay off an existing mortgage in order to eliminate a
required monthly mortgage payment.
Myth 3. - When a reverse mortgage becomes due,
the bank sells the home.
The borrower is in control of the home and retains
title, not the bank or lender. So while it’s common for the borrower or
the heirs to sell the home to repay the loan, it’s a decision the
borrower or his heirs make. The borrower or the heirs might also
refinance the home in order to repay the loan.
Myth 4. - It’s cheaper to move to a smaller
house.
While this strategy might be right for different
reasons, seniors need to analyze their costs carefully before making
this assumption. The process of selling a home and moving into a new
home can be expensive. The typical real estate commission of 6% on a
$300,000 home would be $18,000. Add moving costs, and the undertaking to
find a new home and the decision is not as simple.
Myth 5. - Children want the home or don’t feel
comfortable with a reverse mortgage.
Seniors are encouraged to talk with their children
about reverse mortgages. Many baby boomers are faced with trying to plan
for their retirement and pay for their children’s education. Often, the
children of many seniors are happy that their parents have a financial
solution available to help them live more independently and financially
secure.
Myth 6. - The borrower could end up owing more
than the home is worth.
Two of the great safeguards for reverse mortgages
are that they are structured so that the borrower or his estate can
never owe more than the value of the home upon repayment. In addition,
the HECM products are insured by the Federal Housing Administration, an
arm of the U.S. Department of Housing and Urban Development (HUD).
Myth 7. - Reverse mortgage proceeds will impact
Social Security and Medicare benefits.
A reverse mortgage will generally not affect
regular Social Security payments or Medicare benefits. Depending upon
the borrower’s situation, a reverse mortgage may affect benefits one
receives, if any, from the Federal Supplemental Security Income (SSI)
program, or state-administered programs like Medicaid. It is recommended
that the borrower speak with his or her financial advisor and
appropriate governmental agencies.
Myth 8. - There are restrictions on how the
money is used.
Actually there are no restrictions. The cash
proceeds from the reverse mortgage can be used for any purpose. It is
recommended that the borrower speak to a financial advisor. Many seniors
have used reverse mortgages to travel, pay off debts, help their kids,
make a luxury purchase or just live more comfortably.
Myth 9. - Once the proceeds are received, taxes
will need to be paid.
The cash proceeds from a reverse mortgage are tax
free because it is already your money. It is recommended that the
borrower consult with a financial advisor.
Myth 10. - Reverse mortgages are only for
seniors in need, or for the ‘house rich, cash poor.’
The reverse mortgage is an excellent financial
planning tool that has been used by homeowners from all walks of life to
enhance their retirement years. Increasingly, lenders are seeing
interest and growth among jumbo reverse mortgages geared toward
borrowers whose homes exceed the FHA lending limits, which peak below
$400,000. Many seniors with multi-million dollar homes are using reverse
mortgages as part of their estate or legacy planning in conjunction with
advice from financial advisors.
Editor’s Notes:
About Financial Freedom
Financial Freedom Senior Funding Corporation, a
subsidiary of IndyMac Bank, F.S.B., headquartered in Irvine, California,
is the largest originator of reverse mortgages in the United States.
Financial Freedom originated over $5 billion in loan fundings on $15.2
billion in home value in reverse mortgages in 2006 and is now the
largest servicer of reverse mortgages with a servicing portfolio of over
130,000 loans.
Financial Freedom developed the industry’s first
reverse mortgage software, the Reverse Mortgage Analyzer, to help
lenders compare the benefits between the HECM, Fannie Mae and the Cash
Account products. The Reverse Mortgage Analyzer has been a powerful tool
since 1997 and is the industry standard with more than 28,000 registered
users. In addition, this RMA software application has been used to train
counselors.
Financial Freedom is also founding member of the
National Reverse Mortgage Lenders Association. NRMLA is a nonprofit
trade association, based in Washington, DC, whose mission is to support
the continued evolution of reverse mortgages as an important financial
option for senior homeowners while educating both its members and
consumers about the varied applications of this unique loan. For more
information, visit the Financial Freedom Web site at
www.financialfreedom.com.
Members sign a Code of Conduct pledging to abide
by guidelines that assure fair, ethical, and respectful practices in
offering and making reverse mortgages to seniors. For more information,
visit the NRMLA Web site at www.reversemortgage.org.
About IndyMac Bancorp, Inc.
IndyMac Bancorp, Inc. (NYSE: IMB) (Indymac®) is
the holding company for IndyMac Bank, F.S.B. (Indymac Bank®), the 7th
largest savings and loan and the 2nd largest independent mortgage lender
in the nation. Indymac Bank, operating as a hybrid thrift/mortgage
banker, provides cost-efficient financing for the acquisition,
development,
and improvement of single-family homes. Indymac
also provides financing secured by single-family homes and other banking
products to facilitate consumers’ personal financial goals.
For more information about Indymac and its
affiliates, or to subscribe to the company's Email Alert feature for
notification of company news and events, please visit
http://about.indymacbank.com/investors.
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