A reverse mortgage sells the home to the bank

Lenders do not want to own homes, but make loans and earn interest from the homeowner. The homeowner will always keep the title to their home in their name. The lender instead 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.

Heirs will not inherit the home

The estate inherits the home like they would have but there will be a lien on the title for the balance of the existing home mortgage. The balance is whatever proceeds were received from the reverse mortgage plus the interest accumulated.

A reverse mortgage is a “non-recourse” loan which means the only asset guaranteeing the loan is the property itself. If the property value is less than the balance of the reverse mortgage, the lender is not permitted to ask other assets from the estate and must make an insurance claim for the loss to the FHA.

The homeowner could get forced out of the home

The FHA reverse mortgage was created to let homeowners stay in their home for the rest of their lives. The homeowner can never be evicted or foreclosed on because the homeowner receives payments from a reverse mortgage instead of making payments.

Someone can outlive a reverse mortgage

The reverse mortgage becomes due when all homeowners have permanently moved out of the home or have passed away.

Social Security and Medicare will be affected

Social Security and Medicare are not affected by a reverse mortgage. Although, needs- based programs such as Medicaid can be affected if too much funds are withdrawn in a small timeframe.

The homeowner pays taxes on a reverse mortgage

Money from a reverse mortgage is not considered income and is not taxable. Interest on a reverse mortgage is tax deductible when repaid.

There are large out of pocket expense

Normally, the only out of pocket expense are the cost of counseling and the appraisal.

A reverse mortgage is similar to a home equity loan

The only similarity between a reverse mortgage and a home equity loan is that both use the home’s equity as collateral.