Post in 'DIY and General non-hearth advice' started by Doug MacIVER, Sep 4, 2013.
started looking at these recently. anyone here with experience with these things.
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BIL mom is getting one, not sure of all the details but they are getting about fifty cents on the dollar credit. Then you have to buy it back at the end if you want to keep it or sell it and pay off the loan and keep remainder. I guess depending on the financial situation it could be beneficial. Personally, if you have that much equity there are probably other options.
What's your family's longevity history? Do you like to gamble?
My father was courted by the idea. He and mom ended up selling and moving in with us. Comes down to closing costs and the equity in the home. If you don't have income to qualify for a standard loan then they are a valid choice, but if you can qualify for a standard mortgage it doesn't make sense:
Scenario #1- You've got a ton of equity but no cash flow. No bank will give you a loan on your home and you don't want to downsize (A TOTALLY LEGITIMATE REASON!! You know better than anyone what your needs will be). My numbers are probably way off but my dad was looking at 20k+ closing costs with a return of 1k/month for expenses. Including SS and a small saving they would have been able to stay in their house indefinitely, or as long as they could. There were different riders and options available which included repairs (so you wouldn't have to pay for a new roof 15 yrs from now) and improvements but if I remember correctly they were pretty expensive and could not be rolled into the loan. It amounts to an upfront insurance policy. But you are covered. At the end of the deal (when you are dead or have to move) they sell the house and get their money back. If there's money left over you or your heirs get a check, but there can be some horrendous fees at the end of the loan so read carefully.
Scenario #2- You've got a ton of equity and cash flow sufficient to pay a mortgage so you can qualify for a conventional loan. You take out a large mortgage, put the money in a safe investment to collect some interest, and use the principal to pay for the mortgage and taxes. I figured for my parents situation this was the best choice. It would avoid the big closing costs of a reverse mortgage, give them access to their money (placed in a revocable trust) and would be easier to sell if/when they wanted to leave. all in all it was about 25k for the "piece of mind" a reverse mortgage would provide, but they owned a 250k house outright. One thing about these loans is they change from one person to the next. I didn't think it was a good fit for my parents because my dad is 8 years older, and no way my mom would want to live by herself. The market has changed a lot since my experience, so things might be different now. I didn't like the idea, because with 200k+ equity it would take 30 years to burn through that cash, and if they were still alive in their late late 90's it would be a piece of take for me to take them out and make it look like natural causes.
It all comes down to you, and if you feel lucky.
Well do ya, pal!
Yeah I looked at reverses. Could not find one advantage to them at all. But that is with other sources for emergencies along the way.
I will let the nieces figure out what to do, and fight over, with the place later.
thanks for the reply. our situation is equity strong with two properties, cash poor trying to save a business. i'm taking soc.sec. and earning restricted for 16 more months.my current 1st and 2nd mortgages are adjustable so we have to move soon. we have to invest about 25k in repairs and up dates. add to it mom in law apt complete with mom in law. which is a good thing. considering at least paying the interest back on the mortgage, maybe even some prin. again thanks for your thoughts.
Good luck with the move.
Good luck with the mother in law
Just make sure that it is in BOTH names. I cannot tell you how many times we have seen (where I work) houses get sold against the owners will after the death of a spouse because the reverse mortgage was only in one name on the loan. Upon their death, the debt becomes due in full, if the survivor can't pay the house is sold to settle the debt, leaving the grieving spouse homeless and with no recourse to stay in their home! Federal law limits the amount due to be the actual total due or the 95% of the total value of the home, whichever is less. Do your research as there are all sorts of shady deals out there, just beware.
As an appraiser, I have appraised many homes for Reverse Mortgages. I have never seen a good situation with a Reverse Mortgage. It's usually taking advantage of people that should not be getting a loan anyway. My advice is to stay away from them. The adds on TV are very misleading.
My wife's grandparents have one. They owned their small 2 bedroom 900? sq ft house in an older neighborhood, couldn't really move to a cheaper place, and had little cash coming in. It buys them some groceries and pays the utility bills. I don't know the details of their loan.
We want the dirt. What are the pitfalls?
Usually the applicants are elderly people with dilapidated houses that can't afford to do any repairs. Usually their grown children are living with them and are to sorry to get a job. The children are pushing them to do it.
appreciate your replies, not really our case. as I said, plan is to pay as a regular mortgage but have the ability to keep up costs of two properties. family is equity rich with cash poor due to business circumstance. current property only needs 25k or so to fix and i'd rather not have mortgage to pay when I fully retire
Look at the up front fees. That is what I have heard is the killer. I believe there is some kind of insurance you are forced to take.
1 mo.libor+2.5% margin+1.25%gov't ins. charge= 3.95% or so. on the saver program 6000.00 comes out when house is sold. gov't got some funny assumptions, they increase the value of your home roughly 4%/ year. oh well, the flex in this type of mortgage is intriguing. you can pay it as a regular mortgage, interest only, part of interest or nothing at all.in my situation I want to pay it down and if something goes wrong it doesn't make much difference. my kids don't need for much so I and the wife can live more comfortably til we can downsize.. really leaning towards this.
sounds exactly like the BILs situation, live there with your family and you dont have to work, Mom runs out of money get a reverse mortgage
done deal. really pleased with my lender at this point in time. to be redundant, the flexibility with this mortgage is key, pay it down, pay part of it, skip a month, don't pay anything but taxes. really a relief and a sense of peace of mind where this butt sits. Happy Thanksgiving to all, I know we are having a good one.
Glad it works out. I dont know if I'd have the discipline for something like that. I need the whip at my back to chase me away from the stove and out of the house.
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