There’s a scripture that says in part, “My people perish for a lack of knowledge”. This phrase has been applied in countless ways and it can be said it applies to retirees who lack a basic understanding of how a reverse mortgage actually works or who’ve been misguided by myths and misconceptions.
Mutual of Omaha Mortgage Survey Results
A recent Mutual of Omaha survey reveals a severe knowledge gap about the basic features of a reverse mortgage among older Americans and retirees. Nearly three-quarters (74%) of respondents in a Mutual of Omaha survey report that they have little or no knowledge about reverse mortgages, with others revealing misconceptions about how exactly they work
“Access to cash is a critical part of a retirement plan, especially when retirees are faced with inflation, unexpected expenses, and longer lifespans,” said Shelley Giordano, director of Enterprise Integration for Mutual of Omaha Mortgage.
Mutual of Omaha surveyed 400 U.S. consumers over the age of 60 between the dates of April 13-25th. Those surveyed were asked to describe their current financial needs and then rate their knowledge of reverse mortgages. They were also asked what getting a reverse mortgage may mean to them and what needs it would meet.
Here are some of the more notable takeaways from Mutual’s survey.
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Survey takeaways
- Two percent said they already have a reverse mortgage or plan to get one in the coming year.
- 74% of respondents say they have little or no knowledge about reverse mortgages.
- Of the remaining twenty-plus percent who say they are somewhat knowledgeable 40% believe their heirs would not be able to inherit the home. What they don’t know is any remaining equity in the property after the death of the last borrower would be available to the heirs or the estate to do with as they see fit.
- 22% believe that when you get a reverse mortgage you basically sign over the house to the bank or the lender.
This is perhaps one of the most common and persistent reverse mortgage myths that has lived on for over 30 years which we shall address as the first of the four most common found in the survey responses.
Common myths persist
The second myth is that the heirs are left with the financial burden or debt of a reverse mortgage. What’s overlooked and misunderstood is the HECM’s unique and nearly unparalleled ‘non-recourse’ provision. Heirs are in fact not obligated to repay the reverse mortgage unless they wish to purchase the home to assume ownership. The third myth is perhaps more of a misunderstanding and it’s that the borrower has to leave the home before they’re finished using it. On its face that’s certainly a myth. However, if the borrower violates the terms of the loan such as not paying property taxes, insurance, or other required property charges they would likely have the loan called due and payable. Another possibility is if the last surviving borrower or non-borrowing spouse goes into long-term care and no longer occupies the property. The fourth myth is a real head-scratcher- monthly payments are required. Perhaps this myth can be attributed to the fact that reverse mortgages are counterintuitive to the general public who is conditioned that mortgages in general require monthly payments lest you get foreclosed upon. One survey respondent says, “Based on what I’ve heard, my monthly mortgage payments would be paid by someone else, and I would continue to be able to live in the home. They would own the home if I died; the home would no longer be mine,” this respondent said.
Conclusion
What the survey reveals is this. Despite years of television ads and celebrity spokespersons, increased marketing and educational efforts, and publications from HUD and other agencies, a wide swath of the American public is generally uninformed or unaware of how a reverse mortgage works and what it could potentially do for them. The fields are ripe for education to dispel the myths and innuendo about one of the most unique and versatile mortgage loans in the United States.
Resources:
Mutual of Omaha Survey:
Are Reverse Mortgages Misunderstood? (Mutual of Omaha Survey)
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4 Comments
Hi Shannon:
It is my understanding that the heirs could buy the home for 95% of the value upon death of the borrower. Is that correct or would they have to pay the entire loan balance upon death of the borrower? Thanks for clarification.
Sandy- good question. The 95% payoff only applies if the HECM’s ending loan balance exceeds the current appraised value of the home. For example, if the homeowners had a $400,000 outstanding balance and the home was appraised at $850,000 then the estate or heirs would stand to claim $450,000 after paying off the full outstanding HECM balance of $400,000.
Sandy,
Technically the heirs inheriting the home are not buying it even. when the lower of the current UPB or 95% of the current appraised value of the home payoff rule applies. This payoff rule is under the nonrecourse section of the mortgage contract and is only available to heirs. This payoff rule is NOT available to borrowers.
Such a good topic. As a Reverse Mortgage Professional for over a decade I am still answering these basic questions very often. Both to the potential borrower or the family. I continue to stress to clients that they still own and have full control over the property. There is a great need for education in the reverse mortgage space. Thanks for continuing to cover these topics Shannon.
Larry M.