Eight reverse mortgage myths that stop good candidates

The title stays in your name. The lender records a lien, exactly as your current mortgage company has done. You can sell, refinance, or will the home to your children. The only difference is when the balance falls due.

A HECM is non-recourse. The home is the only asset the lender may pursue. If the balance exceeds the sale price, FHA insurance — which you paid for — covers the shortfall, and no heir, estate or other asset is touched. If the home is worth more than the balance, your heirs keep the difference.

Not while you live there and meet your obligations — property taxes, homeowners insurance, and basic upkeep. That last part is not decoration: failing to pay taxes or insurance is the leading cause of reverse mortgage foreclosure, and it is entirely avoidable. If those bills are already tight, a set-aside can pay them for you automatically.

What cannot happen: being forced out because the balance grew past the home's value, or because the lender changed its mind.

It was, largely, twenty years ago. Since the 2015 financial assessment rules the borrower profile has shifted considerably, and a body of retirement research now treats the growing line of credit as a legitimate planning instrument — a buffer that lets a portfolio recover instead of being sold into a down market. Some of the most deliberate users of this product have seven-figure net worths and no need for the cash at all.

Most borrowers do not. The existing mortgage is paid off at closing from the proceeds, and eliminating that payment is the most common reason people do this in the first place. What you need is enough equity to cover the payoff plus closing costs.

Loan proceeds are borrowed money, not income. They are generally not taxable and they do not affect Social Security or Medicare.

Needs-based programs are a genuine exception. Medicaid and SSI test your assets, and proceeds left sitting in the bank at month end can count against you. The usual answer is to draw only what you will spend within the month. Raise it before you apply, and confirm it with a benefits specialist or elder law attorney — not with a loan officer, us included.

This one runs the other way — it is the myth that gets people hurt. You can absolutely default: by not paying property taxes, by letting insurance lapse, by leaving the home for more than twelve months, or by allowing the property to deteriorate. Every one of those can make the loan due and payable. Anyone who glosses over this is not doing you a service.

It is a loan from a private lender, insured by FHA. The government's role is the insurance — which is meaningful, since it is what makes the loan non-recourse and guarantees your line of credit — but there is no government money, no entitlement, and no program you are owed. Any advertisement implying otherwise is one you should walk away from.