Last week Palm State Mortgage began a discussion of the pros and cons of reverse mortgages. We invite you to visit last week’s Part One about living life with a reverse mortgage before you launch into this week’s Part Two.

We promised you last time that we would identify some of the misrepresentations, misconceptions and myths about reverse mortgages. Let’s take a look at these contingencies as if they were a grade school test with “true” or “false” answers.

1. Your best friend told you that you can not be forced out of your home. This is true. The whole point of the reverse mortgage is to allow senior citizens to stay in their homes for the rest of their lives. Naturally, the homeowner is immune to eviction or foreclosure since they have made a deal with the lender to receive payments instead of make them. It follows logically that the “homeowner can never be evicted or foreclosed on for non-payment.”

As the home owner, your part of the agreement is to keep the property in nice condition and keep the insurance and taxes current. Your best friend was correct!

2. Cousin George told you that you are just outright selling the home to the bank. False. This is not true. Lenders only want to make loans and gain interest. They are money people, not house people.They do not ever actually want or need your house. That is why the homeowner will always keep the title to their home in their name. “The lender adds a lien onto the title for the amount borrowed so that the lender can make sure that it will eventually get paid back on the money they had lent.” Cousin George is misinformed.

3. Aunt Gloria declared that some people actually outlive a reverse mortgage. False. Absolutely false! If anyone ever tells you they have done this, they are sadly misled or lying. This is really a myth. The reverse mortgage is due when you and/or your spouse or fellow homeowner permanently move out of the home or die. Aunt Gloria must have misunderstood.

4. Your older brother warns you that your children will never inherit the home. False! Another myth! Of course your estate inherits the home–and the lien. By legal agreement, there will be a lien on the title for the balance of the existing home mortgage. All your heirs have to do in order to clear the title is to pay “whatever proceeds were received from the reverse mortgage plus the interest accrued.” This time, you are wiser than your older brother.

6. Your co-worker informs you that the homeowner pays special taxes on a reverse mortgage. False! This is a matter of much confusion. What you pay is your regular property tax, because remember you are still the homeowner. Your co-worker misheard a myth.

The good news is that the actual money received from your reverse mortgage is not considered income and therefore, it is not taxable. Warn your heirs however, that interest on a reverse mortgage might be tax deductible when repaid.

7. Your grocery clerk tells you there are always enormous out of pocket expenses associated with your reverse mortgage. False! This is a common misconception. The experts state, “There are substantial upfront fees (i.e., mortgage insurance premiums, loan origination fees and closing costs) with these loans, as well as ongoing fees, during the course of the loan. Before you take out the loan, you have to consider how much you will pay in fees so you have enough to cover your expenses.” To put it simply, you can include most associated fees with the loan itself. Typically your out of pocket expenses will be the cost of your financial expert’s counseling, and the appraisal. “Other costs can be financed in the loan.” Your grocer just doesn’t know how the loan works.

8. Your Uncle Joe states that your reverse mortgage is similar to a home equity loan. False. You can tell Uncle Joe that the only similarity between a reverse mortgage and a home equity loan is that both use the home’s equity for collateral. Otherwise, the equity loan is a horse of a different color entirely, and the subject of a future blog. Uncle Joe has not done his research.

The moral of the stories in this blog is that you do not have to depend on your older brother, your best friend, your co-worker, or your aunt to give you information about the reverse mortgage. You can visit us at Palm State Mortgage for information about your options. Next week, we will to tell you about some alternatives to the reverse mortgage. It is not your only choice for your golden years.