Reverse Mortgage Questions!!?

[jrry32]

Owning a home free and clear is quite rare, and most of the reverse mortgages are paying off the current mortgage. And all homes are encumbered with property taxes.
For the beneficiaries, it is actually a benefit to acquire a home that has a reverse mortgage on it as opposed to a typical mortgage or home equity loan. The reverse loan typically offers 6-12 months for the property to be disbursed where on a standard mortgage the loan needs to be kept up to date. Either way the mortgage is treated the same when the propert is sold.
Lastly, as it pertains to beneficiaries, it is merely an avenue to liquidate an asset to provide quality of life. Drawing income from the equity is an option as opposed to liquidating stock accounts or retirement accounts that would be left behind. Negatively amortizing the home at around 4% may be better for the beneficiaries instead of liquidating a stock account that may be earning 8-10%

With it being marketed to the elderly, my assumption was that it's much more likely people own their homes free and clear. And a property tax isn't an encumbrance.

My original comment was:
"I guess it would depend on the need for cash and how much you care about leaving your house to your beneficiaries."

I stand by that. I don't know what Dave's needs are for the money. I don't know whether his house already has a mortgage on it or not. I don't know if he has beneficiaries or if he cares if they get the house. I would just keep in mind that any entity offering a reverse mortgage is a business. They aren't in the habit of making bad deals or giving away cash for charitable reasons. They're giving you the reverse mortgage because they have something to gain.

If you have more to gain by taking it, it is worth the risk. It seems like a decent option for older people who need the income. My one point of advice is if you have a friend who is very well-versed in these sort of things, I'd have him/her look over any deal before you make it. These sorts of arrangements are often complex. It would be a good idea if you had someone who is looking out for you to check and make sure that you're not getting taken to the cleaners.

 

[dieterbrock]

With it being marketed to the elderly, my assumption was that it's much more likely people own their homes free and clear. And a property tax isn't an encumbrance.

My original comment was:
"I guess it would depend on the need for cash and how much you care about leaving your house to your beneficiaries."

I stand by that. I don't know what Dave's needs are for the money. I don't know whether his house already has a mortgage on it or not. I don't know if he has beneficiaries or if he cares if they get the house. I would just keep in mind that any entity offering a reverse mortgage is a business. They aren't in the habit of making bad deals or giving away cash for charitable reasons. They're giving you the reverse mortgage because they have something to gain.

If you have more to gain by taking it, it is worth the risk. It seems like a decent option for older people who need the income. My one point of advice is if you have a friend who is very well-versed in these sort of things, I'd have him/her look over any deal before you make it. These sorts of arrangements are often complex. It would be a good idea if you had someone who is looking out for you to check and make sure that you're not getting taken to the cleaners.

Couple of things, and clearly you aren't familiar with how they work, which is ok, most people don't unless they apply for one or assist someone in doing so
1) Its not marketed to the elderly, its only eligible for those who are of retirement age (which is not elderly).
2) Its not a "money maker", its a government sponsored loan by the Federal Housing Authority and HUD and its designed for retirees who may not have the income streams to qualify for a traditional mortgage. Sure, the individual lender who fronts the loan is going to collect fees (and that is where folks need to shop)
3) "I don't know if he has beneficiaries or if he cares if they get the house". Of course they get the house. Whether its a traditional or reverse mortgage, its treated the same way. The idea that the bank keeps the house(I'm not saying that you are saying that exactly) is a common misconception and completely not true. Upon death the beneficiaries inherit the home, but the estate has to be settled first. So the home is sold and all encumbrances are paid, being mortgages, liens AND property taxes due.
4) Complicated? Not really. Lets say I own my house, and its worth 400k and I have a 100k mortgage balance left which I pay $1500 per month out of my fixed income. I do a reverse mortgage which pays off the 100k leaving me only responsible for paying property taxes and home owner insurance. So the loan hits you with 10k in fees, and the reverse mortgage is 110 now, but no payment is required, at 5% interest, that mortgage balance will negatively amortize for the life of the loan. So each month that principal balance increases by $6-700 per month. However I don't need to drain my stocks, 401k or personal savings $1500 to pay the bank. Hence leaving "my estate" net increase of $800-100 per month. There are more complicated versions for sure where folks can pull additional equity out monthly or in lump sum to use as "income", but the math works out in similar fashion. To qualify, people need to have significant equity in the home, so the likelihood of ever capping out the equity, thus leaving the home with no equity to share among its heirs

Full disclosure, I do not sell these loans I am just in a similar business where I recommend this option often (including my own god mother)

 

[VegasRam]

Couple of things, and clearly you aren't familiar with how they work, which is ok, most people don't unless they apply for one or assist someone in doing so
1) Its not marketed to the elderly, its only eligible for those who are of retirement age (which is not elderly).
2) Its not a "money maker", its a government sponsored loan by the Federal Housing Authority and HUD and its designed for retirees who may not have the income streams to qualify for a traditional mortgage. Sure, the individual lender who fronts the loan is going to collect fees (and that is where folks need to shop)
3) "I don't know if he has beneficiaries or if he cares if they get the house". Of course they get the house. Whether its a traditional or reverse mortgage, its treated the same way. The idea that the bank keeps the house(I'm not saying that you are saying that exactly) is a common misconception and completely not true. Upon death the beneficiaries inherit the home, but the estate has to be settled first. So the home is sold and all encumbrances are paid, being mortgages, liens AND property taxes due.
4) Complicated? Not really. Lets say I own my house, and its worth 400k and I have a 100k mortgage balance left which I pay $1500 per month out of my fixed income. I do a reverse mortgage which pays off the 100k leaving me only responsible for paying property taxes and home owner insurance. So the loan hits you with 10k in fees, and the reverse mortgage is 110 now, but no payment is required, at 5% interest, that mortgage balance will negatively amortize for the life of the loan. So each month that principal balance increases by $6-700 per month. However I don't need to drain my stocks, 401k or personal savings $1500 to pay the bank. Hence leaving "my estate" net increase of $800-100 per month. There are more complicated versions for sure where folks can pull additional equity out monthly or in lump sum to use as "income", but the math works out in similar fashion. To qualify, people need to have significant equity in the home, so the likelihood of ever capping out the equity, thus leaving the home with no equity to share among its heirs

But...(and this is important)... you get a free cat when you sign up?

Good explanation @Dieter.:cheers:

 

[DaveFan'51]

Couple of things, and clearly you aren't familiar with how they work, which is ok, most people don't unless they apply for one or assist someone in doing so
1) Its not marketed to the elderly, its only eligible for those who are of retirement age (which is not elderly).
2) Its not a "money maker", its a government sponsored loan by the Federal Housing Authority and HUD and its designed for retirees who may not have the income streams to qualify for a traditional mortgage. Sure, the individual lender who fronts the loan is going to collect fees (and that is where folks need to shop)
3) "I don't know if he has beneficiaries or if he cares if they get the house". Of course they get the house. Whether its a traditional or reverse mortgage, its treated the same way. The idea that the bank keeps the house(I'm not saying that you are saying that exactly) is a common misconception and completely not true. Upon death the beneficiaries inherit the home, but the estate has to be settled first. So the home is sold and all encumbrances are paid, being mortgages, liens AND property taxes due.
4) Complicated? Not really. Lets say I own my house, and its worth 400k and I have a 100k mortgage balance left which I pay $1500 per month out of my fixed income. I do a reverse mortgage which pays off the 100k leaving me only responsible for paying property taxes and home owner insurance. So the loan hits you with 10k in fees, and the reverse mortgage is 110 now, but no payment is required, at 5% interest, that mortgage balance will negatively amortize for the life of the loan. So each month that principal balance increases by $6-700 per month. However I don't need to drain my stocks, 401k or personal savings $1500 to pay the bank. Hence leaving "my estate" net increase of $800-100 per month. There are more complicated versions for sure where folks can pull additional equity out monthly or in lump sum to use as "income", but the math works out in similar fashion. To qualify, people need to have significant equity in the home, so the likelihood of ever capping out the equity, thus leaving the home with no equity to share among its heirs

Full disclosure, I do not sell these loans I am just in a similar business where I recommend this option often (including my own god mother)

This is great input Dieterbrock. They Fee's are the main part my wife and I are concerned about, and we are looking into it! And we have a consultant lined up to look at it before we decide to go with it or not! I liked your example!!

 

[dieterbrock]

This is great input Dieterbrock. They Fee's are the main part my wife and I are concerned about, and we are looking into it! And we have a consultant lined up to look at it before we decide to go with it or not! I liked your example!!

My last advice would be to ask at least 2-3 lenders to provide you with a loan estimate which should show the difference in fees, then have a financial advisor/accountant/consultant look thru it with you.
Mortgage are so over-regulated right now that I wouldn't be afraid of being "ripped off" but that doesn't mean you cant shop for the best deal