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Fact vs. Fiction - Reverse Mortgages

June 1, 2021

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Gabe Bodner, Reverse Mortgage specialist at The Rueth Team joins Nicole for this episode.

#1 myth: you give up the title of your house with Reverse Mortgage.
Bank or lender takes over the house.

FACT:
You still own the house.

#2 myth: you can no longer pass the house to your heirs.

FACT: 
your heirs can inherit the home, pay off the reverse mortgage and inherit the additional equity above the reverse mortgage.

#3 myth: You're losing equity

FACT: Not losing but USING some of your equity.
Interest is added back to the loan through negative amortization. This does eat away at some of the equity, but based on interest rates on traditional loans, and growth and appreciation, you gain more equity than you are using and saving money on the loan if you need it.

#4 myth: You have to own your home free and clear

FACT: The existing mortgage balance can be absorbed or paid off.

This should be a loan of last resort. 
You have a better probability of financial success by utilizing a reverse mortgage sooner because it's a more efficient use of the equity in retirement.

Can I use a reverse mortgage for purchase OR a refi?
Yes.
If I pull money out for a reverse mortgage are you limited on what you can use it for?
The equity money can be used for anything you want, including acquiring more real estate, paying taxes, gifting, converting an IRA to a ROTH IRA.
The proceeds received are TAX-FREE because it's considered a loan.

Listen to Nicole's happy ending story of how one couple retired and bought two income properties wiping out their mortgage and bringing in steady income.

Some additional information you may find helpful.

Comparison between Home Equity Loan, HELOC, and Reverse Mortgage:

Key Differences
Reverse mortgages, home equity loans, and HELOCs all allow you to convert your home equity into cash. However, they vary in terms of disbursement and repayment, as well as requirements, such as age, equity, credit, and income. Based on these factors, here are the key differences among the three types of loans.

Disbursement
Reverse mortgage: monthly payments, lump-sum payment, line of credit, or some combination of these
Home equity loan: a lump-sum payment
HELOC: as-needed, up to a pre-approved credit limit—comes with a credit or debit card or a checkbook

Repayment
Reverse mortgage (deferred repayment) loans are due as soon as the borrower becomes delinquent on property taxes or insurance or under other certain circumstances.
Home equity loans involve monthly payments made over a set amount of time with a fixed interest rate.
HELOCs involve monthly payments based on the amount borrowed and the current interest rate.

Age and Equity Requirements
Reverse mortgage: must be at least 62 and must own the home outright or have a small mortgage balance
Home equity loan: no age requirement and must have at least 20% equity in the home

HELOC: no age requirement and must have at least 20% equity in the home
Credit and Income Status
Reverse mortgage: no income requirements, but some lenders may check that you can make timely and full payments for ongoing property charges, such as property taxes and insurance
Home equity loan: a good credit score and proof of steady income sufficient to meet all financial obligations
HELOC: a good credit score and proof of steady income sufficient to meet all financial obligations

Tax Advantages
Reverse mortgage: none, until the loan terminates
Home equity loan: for tax years 2018 through 2025, interest-only tax deductible if the money was spent for qualified purposes—to buy, build or substantially improve the taxpayer’s home that secures the loan
HELOC: same as for a home equity loan