Reverse Mortgages

Q

QuickSilver

SF VIP
Location
Midwest
From what I understand, if a Senior needs money to meet expenses, this program will give them additional funds.. Allow them to stay in their home for the rest of their life... but the bank takes the house when the Senior dies.. Does this about sum it up? Does anyone know anymore about it?

How do you feel about this program? Do you think it's a good thing? I suppose if a Senior is very strapped for funds and cannot afford to live on SS or savings.. It's a viable choice.. But I have my feelings about it on a societal level. Much has been said of late about the systematic and relentless transfer of wealth from the middle class to the upper 1%. This is exactly what this turns out to be.. Many times, a persons home is their only form of wealth. Most folks hope to be able to pass this along to their children, or chosen hiers.. thus keeping this wealth in our middle class sector. This takes this only asset.. and moves it up into the pockets of the rich, draining the Middle class little by little. Something is wrong with a Society that cannot provide for their elderly.. It's sad that slowly, and surely... everything will be in the hands of the few.. while most are lucky to have the shirt on their backs... Opinions..?

Reverse mortgages a Godsend? Or a scam..... or at the very least... a transfer of wealth....
 

A reverse mortgage doesn't necessarily mean you can stay in your home the rest of your life. You can stay in your home as long as you are able and can keep up with maintenance and repairs. If you have to move to an assisted living apartment or some such, the bank takes your home as soon as you move out. The reverse mortgage eats up the equity you had so you are left with nothing.
 
rkunsaw said:
A reverse mortgage doesn't necessarily mean you can stay in your home the rest of your life. You can stay in your home as long as you are able and can keep up with maintenance and repairs. If you have to move to an assisted living apartment or some such, the bank takes your home as soon as you move out. The reverse mortgage eats up the equity you had so you are left with nothing.
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Additionally, the home owner is responsible for maintenance and taxes. When the borrower(s) leaves the house for good, whether it be by moving to another residence or death, either the borrower(s) or their heirs, as the case may be, must settle the debt, if the equity has been depleted, or the home goes to the lender.

It is a good thing, bad thing. If you need or want to stay in your home and can no longer afford the payments, then this may be a good thing, plus, the borrower could also get some additional cash from the home. I think this may be the only reason to do something like this.

The stipulation is that if two are owners and living in the home as their main residence, one of them must be at least 62. Assuming that you are making house payments and can make the payments, but need cash for whatever reason like; repairs, pay taxes or take a vacation, I would sooner take out a home equity loan.

Taking everything into consideration, I would try to stay away from a deal like this, but if the situation warrants whereby you can no longer afford house payments, but do not want to re-locate, then this may be worth exploring. It is not a gimmick, but at the end of the day, it does become more beneficial to the lender. This is why you see so many ads on TV from banks and mortgage companies trying to get your business.
 

A better solution to a Reverse Mortgage would be to sell the house invest the cash and down size to some kind of nice rental. You only stay in your OWN Home until you die, go to hospital, nursing home or some kind of assisted living.
 
I kinda thought it was way too good to be true.. The commercials make the lenders out to be some sort of benevolent big brother.. when nothing is farther from the truth.. THEY WANT YOUR HOME... and they want all of the middle class wealth moved up..
 
QuickSilver said:
I kinda thought it was way too good to be true.. The commercials make the lenders out to be some sort of benevolent big brother.. when nothing is farther from the truth.. THEY WANT YOUR HOME... and they want all of the middle class wealth moved up..
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Check it out by a Professional.

 
Thanks Oldman, I have wondered about that. We have two houses on our five acres. The one we live in is paid for. The other one our son built by financing the construction through a bank. He died last February, so now we have to pay the mortgage, or we will loose the land that is still ours. I think we will cut out four acres, and sell the package in a couple of years.
 
I believe that this is the same as 'Equity release' in the UK. There are two types..

1. Lifetime mortgage
With a lifetime mortgage you continue to own your home completely. You are given a loan based on your age and the value of your property.
You can choose to pay the interest charged monthly, or make no monthly payments and roll up the interest into the loan amount .

2. Home reversion.


With a home reversion plan an investment company buys, or arranges for someone else to buy, part or all of your property. You get the sale proceeds as cash which can be paid as regular instalments or as a single cash lump sum.
You will normally get less than the full market value of your home, because the buyer cannot re-sell the property until you die or move permanently in to long term care.
The minimum age for these plans is usually higher than for lifetime mortgages.
You don't normally pay rent, or if you do it is a nominal amount.
Once the plan has started, the investment company benefits from any rise in value, unless you have only sold part of your home in which case you would benefit from any rise in value of the part that you have kept ownership of. When the property is eventually sold, the investment company takes the proceeds of the percentage that it owns and the remainder goes to you or to your estate.
 
Reverse mortgages are expensive and eat up to much of your equity. Better to sell, downsize to a rental using the interest on the invested assets from your home sale.No more property taxes, home owners insurance or other home ownership costs to pay.
 
AZ Jim said:
Some people don't want to leave their homes for a rental.
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It's that emotional appeal of staying in YOUR OWN HOME that is making the Reverse Mortgage Business successful, but for many that have done the reverse mortgage bit and then developed major health problems, they would have been better off selling their home and hanging on to the cash. I have two friends in that situation.
 
I would rather go hungry than take out a reverse mortgage , I have seen stories on a current affair , where seniors who were led to believe they could stay in their home until they passed away , were locked out of their home for the bank to take possession ,because all the equity the seniors had in the property had been used up long before they realised ....
 
3horsefarm said:
Would you rather give your home to a bank......or the nursing home later on?
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That's an excellent point. My wife's sister had a reverse mortgage. Two years ago her husband died and this past January she was placed into a nursing home as a resident. The home had to be sold to satisfy the reverse mortgage. There was zero equity remaining because not only did they take out the reverse mortgage, but also some additional cash. OK, so now you have to stay with me because I get confused with this also and I don't want to come out looking like I am full of it.

So, they bought the home for $245,000.00 about 15 years ago. They never put dime one into the home for repairs or updating. Even the shrubbery and landscaping was let go. As some say; they just lived in it. I think like about 6 or 7 years ago, they decided to take out a reverse mortgage, plus whatever cash they could get, so they ended up with living in a home that was 100% debt. When the husband died and my S-I-L went into a nursing home as a resident, meaning that she will never be released because she has dementia and early Alzheimer, the house had to be sold with all proceeds going to the company holding the RM or they could have allowed the company to foreclose. Either way, they were going to lose the home, unless the kids wanted to pay off the debt and that wasn't going to happen. The house now had an assessed value of $190,000.00. It was in bad shape. Someone was allowed to purchase the home for $180,000.00. We went by the house yesterday and it appears that the new owners are clearing the land and updating the inside. The house was beautiful when it was first purchased, but as we all know, you have to maintain and continue to update as necessary as time moves forward. So, all totaled, the company that held the mortgage probably came out on the short end of this deal.
 
I know a couple that took out a RM some years back. Now they would like to move back "Nawth" to be near their kids. If they move out of their house they wind up with nothing. They are trapped.

My wife and I have moved twice since I retired, aging in place is not a big deal. Having a roof over your head is.
 
I was actually researching this not too long ago and found this website doing the Google search. They put me in touch with a few lenders that have fantastic ratings so it was nice to have that research done for me. Of course, I verified it all with BBB and other review sites. I live in Florida and they were very helpful in answering questions I had. Haven't pulled the trigger yet. There is pros and cons associated with all financial products. Annuities, Long Term Care Insurance, Regular Mortgages - the list goes on. There is no perfect financial product i've learned over my many years.
 
Just my opinion, I have a real low opinion of those celebrities who do the commercials for the reverse mortgages. I think a RM might work out okay for a very small percentage of the people who get them. I put a reverse mortgage in the same category as those payday loans. My only question would be: "Do I get a kiss too?"
 
A reverse mortgage Can be a good thing...IF a person does some careful research beforehand. If its one of these "As Seen on TV" things, it is probably not a very good deal. My old folks took one out in their later years, and it worked out well for them. But then, we have a cousin who is a banking executive, and she found the folks a plan that served them well, and gave them excellent in-home care, took very good care of their needs, and didn't wipe them out financially. Mom and Dad always dreaded the day that they might have to move to assisted living, and the RM allowed them to live out their final years in familiar surroundings with a team of great ladies who took very good care of them.

There are some good plans out there...but I doubt that you will ever see any advertised on TV.
 
Don M. said:
A reverse mortgage Can be a good thing...IF a person does some careful research beforehand. If its one of these "As Seen on TV" things, it is probably not a very good deal. My old folks took one out in their later years, and it worked out well for them. But then, we have a cousin who is a banking executive, and she found the folks a plan that served them well, and gave them excellent in-home care, took very good care of their needs, and didn't wipe them out financially. Mom and Dad always dreaded the day that they might have to move to assisted living, and the RM allowed them to live out their final years in familiar surroundings with a team of great ladies who took very good care of them.

There are some good plans out there...but I doubt that you will ever see any advertised on TV.
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I think the perfect thing would be to spend your last days in your own home with 24/7 kind loving care. If a person could afford it, or as in my case, I'm hoping (if it ever comes to that) a health care provider I am related to (there are 2 of them in the family so far and they are young) would want free housing and food to keep an eye on the oldster part time. I hope to not ever need constant care. It's my dream and I can dream it my way. :)
 
the are lots of problems with reverse mortgages .

can you imagine not being able to drive and living in an area with no public transportation ? or needing care and you want to relocate near family ? compounding reverse interest is not your friend . it can eat up equity in no time because only about 1/2 the equity in the home is loaned against .

if you read the fine print in your agreement you are responsible for maintaining that house in tip top shape . if the bank says you need a new roof or furnace , good luck with that expense .

how fast can the fees and interest swallow up your equity ?

even here in long island with the typical home worth more than 500k it can be quite painful.

On a $250,000 lump-sum in ten years the balance will climb to $465,841. Assuming 3% home price appreciation, that would leave about $72,000 in equity based on a home's $537,566 value. In 20 years, the loan balance would reach $868,031, exceeding the home's $722,444 value.
 
while we all would rather be in our homes being taken care of many times you need big bucks to stay in your home because you may need modifications to the home in order to make it compatible with the health issues you have .

as i always say money may not buy happiness but it certainly can buy choices in life .
 
Some friends of ours who have a RM want to move back to be near family. If they sell the house, the mortgage must be paid off which will leave them with zero equity. They are trapped.
 
yep , that is my point . these types of loans rarely work out well .

even if you don't take a lump sum , the way they figure your payments out so they last a life time , each payment is a lot lower then may actually cover the things you hoped . they generally take 100 and subtract your age , then divide the money over those number of remaining years .
 
More on the benefits and cautions of reverse mortgages for retired seniors. https://www.fool.com/retirement/2016/10/09/read-this-before-you-get-a-reverse-mortgage.aspx
How the balance grows


For simplicity, let's consider a reverse mortgage obtained as a lump sum amount with a fixed interest rate. Let's say that you're 62, and obtain a $100,000 reverse mortgage at 5% interest (including mortgage insurance), and that your home's current value is $300,000. Here's how the balance can climb over time.
Years Since OriginationAgeLoan Balance
163$105,116
264$110,494
567$128,336
1072$164,701
1577$211,370
2082$271,264
3092$446,774
Note: Assumes monthly compounding
Here's the thing to notice. Over time, the balance you owe can climb pretty rapidly, especially in the latter years. However, because of the nonrecourse nature of reverse mortgages, you never actually "owe" more than the value of your home. In this example, if after 30 years your home's value had only grown to $400,000, that's all the lender could legally collect.

Tax implications

In general, the IRS doesn't consider proceeds of a reverse mortgage to be taxable income, rather, it is considered to be a loan advance. Unlike a traditional mortgage, borrowers can't deduct the interest charged on a reverse mortgage each year, as interest isn't deductible until it's actually paid. However, the mortgage insurance premium charged is deductible for taxpayers who itemize deductions.

Because proceeds from a reverse mortgage aren't taxable income, they'll have no effect on Social Security or Medicare benefits. However, proceeds are considered to be liquid assets, and therefore can affect Medicaid and SSI eligibility.

Beware of the costs

Reverse mortgages aren't cheap. According to the National Reverse Mortgage Lenders Association, the average borrower can expect to pay more than $8,900 in fees and other closing costs on a $100,000 reverse mortgage.

Before you decide on a reverse mortgage, it's a good idea to compare its costs to other forms of borrowing. For example, as of this writing, a home equity line of credit (HELOC) can be obtained with a variable interest rate of less than 4% and with no closing costs. However, the drawback is that unlike a reverse mortgage, you'd actually have to make loan payments. Even so, it's a good idea to take a close look at your options.

The bottom line on reverse mortgages

A reverse mortgage can be a great way for retirees who don't have sufficient income from other sources to get extra cash to cover expenses and live the lifestyle they want to live. While a reverse mortgage does have its benefits, the drawbacks need to be considered, such as the long-term loss of equity in your home and the costs of obtaining the reverse mortgage. If the pros outweigh the cons, a reverse mortgage could be a smart move for you.
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