Reverse mortgages have a relatively short history in the United States, with the federally insured and regulated HECM loan product initiated in the 1980s.

In its short history, mainstream financial media and frankly many financial advisors lack an objective, fact-based understanding of how reverse mortgages function. As a result, certain misconceptions have arisen over the years over how reverse mortgages work, and we will look to briefly tackle each one here:

Myth 1: The reverse mortgage lender takes title to your home.

Reality: that is not, and has not ever, been the case. Reverse mortgages are like any other traditional mortgage in terms of title – title remains with the borrower, and the borrower at any time or their heirs, upon the borrower’s passing, retain the right to refinance or pay off the reverse mortgage, or sell the home provided they repay the then outstanding principal amount borrowed under the reverse mortgage.

Myth 2: If your reverse mortgage loan balance exceeds the value of your home, the lender can seek to recoup its losses by taking other assets of the owner or the estate of the owner.

Reality: Not true. A HECM is a non-recourse mortgage, meaning that the borrower and his or her heirs will never owe more than the value of the home when the borrower leaves the home or passes away. This is the main objective of the mortgage insurance premium that is collected at the initial closing and annually, which provides federal government-sponsored insurance to the lender in the event the lender suffers losses after the property is sold, and there are insufficient proceeds to pay off the loan.

Myth 3: Lenders can take your home after you spend down the entire line of credit.

Reality: Not true. Even after spending down the entire line of credit, a borrower is entitled to stay in the home as long as he or she wishes, and the lender cannot force the borrower to leave the home. As long as the borrower continues to pay property taxes, insurance and home maintenance, which are lender requirements for any mortgage loan, the borrower can stay in the home. Moreover, you will never have to make loan repayments in advance of leaving your home, even if the amount borrowed exceeds the value of your home at that time.

Myth 4: Reverse mortgages destroy the legacy that you would leave for your heirs.

Reality: Not true. A properly integrated, thoughtful retirement plan that incorporates a reverse mortgage as a key pillar has the potential, as illustrated by well-respected retirement income researchers like Wade Pfau, to actually enhance the value of the legacy that you may leave your heirs, as we will touch on in the next installment of this series.

While these myths persist in certain pockets of mainstream financial media, including amongst popular financial gurus, it is important to make clear that these myths are indeed just that – myths with no basis in fact. Reverse mortgages do need to be thoughtfully used in pursuit of a well-planned and executed retirement strategy, and there have been cases where borrowers, either lacking a plan or prone to overspending, or both, have misused the proceeds of a reverse mortgage and ended up having to leave their home earlier than they’d hoped for due to their failure to properly plan for the long-run, including set asides to pay for taxes, homeowners insurance and property maintenance over the years.

We hope that this was helpful in explaining why these myths of reverse mortgages can be and should be dispelled. In the next installment, we plan to share with you the ways that a reverse mortgage can in fact play that instrumental role in a thoughtful retirement plan and contribute meaningfully to the financial success of your retirement journey.