Ask a group of people about reverse mortgages, and you’re bound to hear a lot of different opinions and not very many facts. Separating the reality of reverse mortgages from the slew of opinions and misconceptions can be difficult, especially when you are considering one. The truth is that for over 50 years, reverse mortgage loans have offered a viable financial option that is appropriate for some people and situations. However, being appropriate for some doesn’t mean they are right for everyone. Here are four truths about reverse mortgages to help you separate the facts from the fiction.

Truth #1: A Reverse Mortgage Is a Loan

One way to take equity out of your home is to sell it. You get the money, but unless you rent it from the new owner, you also need to move out. A reverse mortgage offers a way to take equity out of your home and continue to own and live in the home. The lender will make some of your equity available to you either as cash, payouts, or as a line of credit. In exchange, at the end of the loan, you will owe the lender the amount you borrowed with interest.

Reverse mortgage borrowers may continue living in their homes without making monthly mortgage payments as long as they also continue to uphold the following loan terms:

• Live in the home as their primary residence
• Maintain the home.
• Pay property taxes, homeowner’s insurance, and other home-related fees like HOA dues.

Assuming you uphold all the terms of the loan, a reverse mortgage doesn’t need to be paid back until the borrower dies or leaves the house permanently. Because a substantial percentage of many people’s net worth is in their home equity, a reverse mortgage offers one way of leveraging it without selling the home. But although it offers a way of accessing that equity, it’s important to understand and remember that it is a loan, and it will need to be paid back eventually.

Truth #2: Reverse Mortgage Borrowers Own Their Homes

Contrary to a common myth, reverse mortgage borrowers do retain the title to their homes. As an assurance that they will be repaid on the loan, the lender will put a lien on the property. This is true of any loan that uses equity as a security, including a conventional mortgage. When the loan is repaid, the lien is removed. Should the borrower not uphold the terms of their loan, the lender may foreclose on the property to recoup their investment. That does not, however, mean that the borrower loses possession of their home by taking a reverse mortgage on it. And, as long as the borrower upholds the terms of the reverse mortgage, they will remain on the title and the owner of the home.

Truth #3: Reverse Mortgages Aren’t an Option for Everyone

Reverse mortgage borrowers fit multiple financial profiles and have a range of reasons for choosing to tap their home equity. These might include everything from wanting to have a reserve fund for the future and supplementing streams of income to paying for a child’s education (to name just a few).

While one possible use of a reverse mortgage is to help alleviate cash flow concerns, the idea that they are a loan of last resort is misguided. This is for the simple reason that to get a reverse mortgage, borrowers need to be able to demonstrate that they are able to afford one. One of the eligibility requirements of the loan, including meeting the age requirement, being able to fulfill the financial obligations (detailed above), and having sufficient equity, is that all borrowers must undergo a financial assessment by their lender. This financial assessment is meant to determine whether a borrower will be able to meet the financial terms of the loan.

Truth #4: Heirs Do Not Inherit the Reverse Mortgage Debt

When a reverse mortgage ends, often due to the borrower’s death, the loan becomes due and must be paid. The loan balance may be resolved in multiple ways, including through the sale of the home or foreclosure. But while the executor of the estate will be tasked with choosing how best to settle the reverse mortgage debt, the heirs will not be saddled with any additional debt from the reverse mortgage.

For Home Equity Conversion Mortgages (HECMs), the official name of federally insured reverse mortgages, and some proprietary reverse mortgages, heirs have an additional layer of protection in that these loans are non-recourse. This means that should the loan balance exceed the value of the home when it is sold to satisfy the loan, the lender cannot recoup any additional funds from the borrower or their heirs.

What’s Your Truth?

The real truth about reverse mortgages, like any regulated financial product, is that they are neither good nor bad. Whether they make sense for any given person is dependent on that person’s financial situation, values, goals, and a host of other variables. Before embarking on a reverse mortgage loan, it’s important to learn everything you can about how they work and how they might impact your financial future. Enlisting the help of a financial advisor for a conversation about your current situation and hopes for the future is a great place to start.