Motley Fool Tackles Some Reverse Mortgage Confusion

A reverse mortgage comes with some caveats, but can be a viable option for those whose net worth is tied up largely in the equity in their homes, according to a Motley Fool article and video interview posted this week. 

“For so many people, almost the entire source of their net worth is locked up in the home,” says Motley Fool’s Dan Caplinger, director of investment planning. “They might not have investments or big bank accounts, but many have managed to pay down their mortgage over time.” 

Caplinger debunks two reverse mortgage myths in the interview, one being that the bank owns the home or can foreclose during the course of the loan. As long as the borrower lives in the home, he stresses, the loan does not become due. 

The fine print, however, can arise when the homeowner has to leave the home for a higher level of care such as nursing care or assisted living. 

“Under certain reverse mortgage terms, that opens the lender to say ‘we’re going to take the home and get the home sold and get the loan paid off.’” he says. 

Second, Caplinger addresses the issue of the heirs’ inheritance of the home. 

“Your heirs will have the option of paying off the loan,” he says, countering misunderstandings about whether the heirs lose access to their inheritance through a reverse mortgage. 

But, he says, where one borrower is named on the reverse mortgage and home title and a non-borrowing spouse is present, problems can arrive. 

“It’s easy to avoid this, but you have to know what you’re looking for,” he says. 

View the Motley Fool segment

Written by Elizabeth Ecker

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