I have been impressed by the large number of financial institutions on TV hyping the reverse mortgage, and using high profile spokespersons such as Jim Garner for that purpose. These mortgages must be cash cows to somebody, but not the borrower. They are costly in fees and interest to the borrower and can be a serious burden to the heirs.
As an example, a couple in their late 60's with $100,000 equity in their home, could get about $58,000 in a lump sum or a line of credt. The amount received would be discounted by several thousand dollars of fees and the couple is still liable for property taxes, insurance and upkeep.The $58,000 plus interest is the amount to be repaid the lender some time in the future when the couple no longer resides in the dwelling. So instead of leaving their heirs with an asset, they are placing a financial burden upon them at a time when such a burden is most unwelcome. If the couple becomes incapacitated because of age and must enter a long term care facility the burden is especially onerous. Not only must the potential heirs bear the cost of care, but also must repay the loan. Assume the house, worth $100,000 at the time of the loan, cannot be sold for sufficient funds to cover the loan amount. The heirs would be required to make up the difference.
I believe anybody considering a reverse mortgage should think it through very carefully and if there is any other finacial vehicle available to them they should opt for it before going the reverse mortgage route. Remember, this vehicle is an increase in debt and a decrease in equity. Not particularly good for the elderly, worse for the estate.
Any other opinions out there?
They are okay.....
If you are someone who has already paid off your house and looking for extra money for a project or even for a kiddo to go to college. Other than that they are not recommended for anyone else, don't get me wrong if you want to you can but sometimes you can end up owing more on your home than what it may be worth. That isn't always the case though....
~Life is too short for idiotic behavior!
Okay?
Since the minimum age for obtaining this type of loan is 62, I don't think there would be many people funding a college education. If the family has a pressing emergency, like drastic medical or mandatory building or transportation repairs, the reverse mortgage might be attractive. I just don;t see many circumstances where it is a good solution and think people need to give this decision a good long look before committing to it.
You are right!
But you will be surprised how many elder's will do a reversed mortgage on their home for a college fund for their kids or grandkids. Take for instance, my dad is 71 and I'm 28 and he was willing to do a reversed mortgage or do another mortgage on his house just to help me through college. They have been around for years, but haven't been real popular until the mortgage crisis and the economy crapola started going down. I personally wouldn't recommend them at all for anyone, unless it an emergency.
My personal feelings! I am a Certified Notary Signing Agent along with a Paralegal and I don't like the thought of a Reversed mortgage and that is my living.
~Life is too short for idiotic behavior!
They are not new
They have been around for 40 years I know of…
They were very popular in SF, when I was selling real estate there in the 70’s.
There is a large pop of childless adults and they have no one to leave there property to besides the Zoo…
With a reverse mortgage, then we called it an Estate for Years, U made a deal with the mortgage company based on how long U thought U would live…
Then instead of making a mortgage payment the bank would pay U each month…
U got so much a month until U died…
It was sort of Your last bet…
if U died in a few months or years the bank made money, if U lived another 20 years they lost out…
But with the prices of SF property the bank won in the end.
I always sort of like the idea….
U paid for the place for 40 years, why not enjoy your life a little more in the last 5 or 10...
‘To most people living on a pension and SS just a few hundred dollars a month really makes a difference in your life style…
So if U are a couple with no children, or none that U like, it’s a good way to spend all your money and die broke, which I’m trying to do daily…
childless
Is there somewhere in this world a bank, S&L or realestate financer who will lend me money for any purpose unless I have either an heir or an insurance polocy which will pay off that loan if I die? With no hope of ever being repaid who is going to put up the money? If you know of one I would like to hear of it. I don;t think they want the property, otherwise all of these reverse mortgages would simply go into default.
Now the last time I did one of these it was 1975...
Now the last time I did one of these it was 1975...
But what we would do is find a LOL that had bought a SF row house when they were $6 or $7,000 in the 40’s after the war…
She lived there all those years payin off the house…
Then she is 70 and eatin cat food on SS goin broke, and she has a $125,000 home?
So we would basically buy her house from her and allow her to live in it tell she passes and pay her a monthly payment for the right to own the house when she dies?
So if she was 70 in good health we would shoot for a 10 to15 year deal, fig house worth 125,000/12 = 10450.00 a year / 12 months = 850 a month then take out taxes and insurance your goin to own her house and pay her about $500 month to live there until she dies.
Chances are she won’t make it 12 years?
Or as the rate of property increase in SF in 12 years the house will be worth $175 to $200 grand plus maintenance will be nil because the LOL takes good care of her House…
That’s how we did it, I don’t know if that’s what they are doin here…
concepts differ
What you were doing in Calif. was buying a residence below market value with the hope of reselling at a profit. If the original owner survived only a year or two, you came out ahead. If they lived 5 or ten years you maybe lost money. A reverse mortgage is different. It is a loan with the house equity as colateral. The original loan amount draws interest compounded yearly. The longer the original owner lives, the more interest is accrued and the more the bank makes. In the end, the bank intends that the loan will be repaid. They have no more interest in foreclosing these loans than they do on a standard mortgage. If you have no heirs, or other means of satisfying the loan after death, I doubt you would receive the loan to begin with. There is an age requirement - you must be 62 or older to qualify for the loan.
The reason this worked the way it did in SF
The reason this worked the way it did in SF
is there is so little land and such a demand for it…
SF is 7 miles wide and tall, in any direction 7 miles…
I’ve walked the length and width many times and that’s all there is…
no more and they ain’t makin any more of it…
Well they fill in the bay a little from time to time but that’s it…
Some of the $125,000 places I bought in the 70’s are now worth over $2 mil wished I still owned one…
But that’s why it worked there, NY is the same,
U almost have to inherit a place to get one…
That’s why Mass Transit works too, and never will here..