Debunking Common Myths About Reverse Mortgages

Reverse mortgages are often misunderstood, leading many homeowners—especially retirees—to overlook a financial tool that could benefit them. Let’s break down some of the biggest myths about reverse mortgages and clarify what’s really true.

Myth #1: The Bank Owns Your Home

Reality: You still own your home.
A reverse mortgage is simply a loan secured by your home’s equity, just like a traditional mortgage. The lender doesn’t take ownership; they just place a lien (a legal claim) on the property to ensure repayment when the loan ends—typically when you sell, move out permanently, or pass away.

Key Term:

• Lien – A legal right or interest that a lender has in your property until you repay your debt.

Myth #2: You’ll Owe More Than Your Home Is Worth

Reality: Federally insured reverse mortgages—called Home Equity Conversion Mortgages (HECMs)—come with a non-recourse feature. That means you or your heirs will never owe more than the home’s market value when it’s sold, even if the loan balance exceeds that amount.

Key Term:

• Non-recourse Loan – A type of loan where the lender’s only recourse (way to collect) is the collateral—in this case, your home. They can’t come after other assets or your heirs for repayment.

Myth #3: Reverse Mortgages Are Only for Desperate Homeowners

Reality: Many financially stable retirees use reverse mortgages strategically—to delay Social Security, fund home improvements, or build a safety net for healthcare costs. It’s not a “last resort” but a planning option when used wisely.

Myth #4: You Can Lose Your Home Suddenly

Reality: As long as you continue to live in your home, pay property taxes, maintain homeowners insurance, and keep the property in good condition, you can stay in your home indefinitely. The loan only becomes due when you no longer live there permanently.

Myth #5: Your Heirs Lose the Home Automatically

Reality: Heirs have choices. They can sell the home, use the proceeds to repay the loan, or refinance to keep it. If the loan balance is greater than the home’s value, they can hand the property back to the lender without owing anything more.

Myth #6: You Can’t Get a Reverse Mortgage if You Still Have a Loan

Reality: You can—as long as you have enough equity. The reverse mortgage proceeds first pay off your existing mortgage, eliminating monthly payments and freeing up cash flow.

A Few More Helpful Definitions

• Home Equity: The difference between your home’s current market value and what you owe on your mortgage.
• Principal Limit: The maximum amount of money you can borrow with a reverse mortgage.
• HECM (Home Equity Conversion Mortgage): The most common type of reverse mortgage, insured by the Federal Housing Administration (FHA).
• Loan Origination Fee: The cost charged by a lender to process your loan application.

The Bottom Line

Reverse mortgages aren’t for everyone, but they’re also not the risky product they’re often made out to be. Understanding the facts—along with terms that might sound intimidating—helps homeowners make informed decisions about their retirement and housing options.