If you think there are too many reverse mortgage cons and have ruled out the thought of ever obtaining a reverse mortgage, then you will want to review this article. There are reverse mortgage cons and there are also reverse mortgage pros. As with any financing you have both. You need to know the facts so that you can decide if it’s right for your needs, not the bank! This article will cover the truth about reverse mortgage cons.
There are many reverse mortgage disadvantages circulating the internet that simply are not true. This article will cover the two most prevalent: the bank will own your home and the bank will get any additional equity in the home.
First we will review the most common myth about reverse mortgage cons: the bank gets your home. When a borrower completes a reverse mortgage transaction that borrower retains the title to the home. The transaction is just like any other home finance transaction the borrower has been through. The borrower is placed on the Title and a Deed, a legal instrument used to grant a right. These legal documents provide the borrower the right to the property and only the borrower or a power of attorney (signed by homeowner) can give away those rights.
The misconception of the bank taking your home has been around forever even though it has no substance. The last thing a bank wants is your home. When a borrower takes out a reverse mortgage the bank calculates the amount a borrower can get by the amount of any existing liens, the appraised value and a percentage of loan-to-value risk. The bank specifically lends only a safe and calculated amount where in the event your home is worth less in the future they don’t lose any money.
This is the why many think the bank will take your home, if the value drops in the future. If this happens you are the winner in that situation. A reverse mortgage is a non-recourse loan. A non-recourse loan means that the bank can only recover the equity from the home. So if the home is worth less now, then the bank takes the loss on the difference between the loan and equity in the home.
The second common myth that homeowners are afraid of is losing any appreciation on their home to the bank. In this current economy banks will typically only lend maybe 50% of what the current home is worth. Regardless if your home appreciates or not; you have additional equity in it. Remember you retain title to the home so any equity is yours.
When you move to a new primary residence or all borrowers die proceeds from the sale of the home will go to paying off the reverse mortgage. Any additional money will go to the borrower or whomever the homeowner designated as the beneficiary of the home. This means if a borrower has children that they have designated as their beneficiary then any additional equity in the home will go to them.
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