Reverse Mortgage Pluses & Negatives

boaterboi

boaterboi

Can't ReMember
Location
Clarkston, Michigan
Hello. This is my first post here. I am 62 and recently retired. My finances are in great shape but income is limited. I'm kicking around the idea of a reverse mortgage. I seem to be a perfect candidate for one as I am single, have no heirs to look out for and my house and all assets are free and clear. I have a second home in northern Michigan. I can get guaranteed income until the day I die or sell my home of over $400/month. What are the negatives that I may be overlooking? Thanks in advance. Carl.
 

Hi Carl, welcome! :welcome: No hands-on experience with them, but you're wise to research all the possible negatives beforehand.
 

Thanks guys. It seems like a great way to add some income but it also closes some doors by eating away at my home's equity. The only drawback I can think of now is that it could prevent a move in the future if my health should deteriorate and require changes. I'm really up in the air on this. I have no fixed payments or monthly interest bogging me down and $400 each month would go a long way. Gemma, I will read those links.
 
We have friends out in Arizona who took a 2nd mortgage some years ago. They want to move to be near family, but don't have enough equity left to buy a house back where their family lives.
 
I did some research on this question a year or so for a friend... For myself, I would only go the reverse mortgage route if I were absolutely sure I would never want to move and if I were certain I was near the end of my life, or if I could not make ends meet without the income the reverse mortgage would generate. And I mean that I seriously COULD NOT afford to live without that income. It is sort of a last ditch resource, as far as I'm concerned, because it closes a lot of doors.
 
What's the situation if you have a reverse mortgage and want to move?
Butterfly said:
I did some research on this question a year or so for a friend... For myself, I would only go the reverse mortgage route if I were absolutely sure I would never want to move and if I were certain I was near the end of my life, or if I could not make ends meet without the income the reverse mortgage would generate. And I mean that I seriously COULD NOT afford to live without that income. It is sort of a last ditch resource, as far as I'm concerned, because it closes a lot of doors.
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dpwspringer said:
What's the situation if you have a reverse mortgage and want to move?
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If you wish to move then you must pay off the balance of the reverse mortgage. This is the biggest negative that I see in a reverse mortgage. It chips away at your home equity and what is most people's largest asset. I have made the decision to move forward on a reverse mortgage line of credit. Since the amount of this credit line is largely based on the property appraisal I will be spending this winter painting and doing minor repairs and a full cleaning of my home's interior. Come spring I will touch up the exterior paint, wash windows and do a few minor repairs to the exterior. If my appraisal doesn't come in where I need it to be then I will wait a couple of years. A cool thing is that if you don't use the credit available it grows at the interest rate of the mortgage. I do have other assets including a second home in northern Michigan so a move would still be possible if it became necessary. At this time I would be content to live out my life in my current home. None of us knows what the future holds health wise though.
 
boaterboi said:
If you wish to move then you must pay off the balance of the reverse mortgage. This is the biggest negative that I see in a reverse mortgage. It chips away at your home equity and what is most people's largest asset. I have made the decision to move forward on a reverse mortgage line of credit. Since the amount of this credit line is largely based on the property appraisal I will be spending this winter painting and doing minor repairs and a full cleaning of my home's interior. Come spring I will touch up the exterior paint, wash windows and do a few minor repairs to the exterior. If my appraisal doesn't come in where I need it to be then I will wait a couple of years. A cool thing is that if you don't use the credit available it grows at the interest rate of the mortgage. I do have other assets including a second home in northern Michigan so a move would still be possible if it became necessary. At this time I would be content to live out my life in my current home. None of us knows what the future holds health wise though.
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What's the interest rate if you did decide to pay it off? You can't get free money.
 
Butterfly said:
What's the interest rate if you did decide to pay it off? You can't get free money.
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In a nutshell the interest is close to 6%. Where they get you is by $6,000 in closing costs. Now if no other liens need to be paid off then you begin paying interest on that $6,000 immediately. However, let's say they give a credit line of $80,000. If I don't touch that $80,000 then my credit line goes up at the same interest rate. This is computed monthly so you don't want to make monthly withdrawals. Maybe take out $5,000 and no more for several months. Now you are paying 6% on a balance of $11,000 and the remaining credit line grows each month that it isn't touched at the same interest rate. Interest charged on the amount owed does not reduce your available credit. There is no early payment penalty. You pay off the mortgage if you decide to sell the home or it gets paid off when you die from proceeds of the sale of the house. If the sale of the house does not cover the mortgage balance then the FDIC pays the bank the shortage. It cannot eat away your estate other than the house that is reverse mortgaged.
 

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